"The Union Cabinet chaired by Prime Minister Shri Narendra Modi has approved that the Merchant Discount Rate (MDR) applicable on all debit card/BHIM UPI/ Aadhaar enabled Payment System (AePS) transactions upto and including a value of Rs 2000 will be borne by the Government for a period of two years with effect from 1 January, 2018 by reimbursing the same to the banks", the government said.
For transactions up to Rs 1,000, MDR has been capped at 0.25 per cent of the transaction value.
"The government today has taken a major decision that to accelerate digital payments in the country".
Each time a card is swiped, a vendor pays an tax to the bank.
According to the government, the practice of merchants asking customers to bear the cost of MDR for making payments through debit cards forces people to make cash payments despite having debit cards.
Under the revised slabs of the MDR, for small merchants with annual revenues of less than Rs 20 lakh, MDR is 0.4 per cent of the transaction value, or Rs 200, whichever is lower.
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Kanungo maintained that the RBI's policy was aimed at the twin objectives of boosting debit card transactions, especially for smaller merchants, and also to make it worthwhile for banks to recover a part of the cost so as to invest in infrastructure for making transactions secure.
As of October 2015, there were 61.5 crore debit card users and 2.3 crore credit card holders in the country. "Credit cards are largely used for payments in big retail outlets. Debit card fee is a small but a key area of growth for most of these". SBI has also made a portrayal to the administration to empower use of goal of offer terminals (POS, card swipe machines) made in India. Prasad said that from April to September 2017, digital transactions using debit cards was at Rs 2,18,700 crore.
"This amount is estimated to be Rs 4.37 lakh crore for the whole of the current financial year", the minister added.
For merchants with turnover of over Rs 20 lakh, the MDR cap will be 0.9 percent or Rs 1,000 per transaction, whichever is lower. In volume terms, it was much higher.
The Cabinet also endorsed the sum required for such repayments for the following two years.
Due to this, Govt. will take a hit of Rs 1050 crore in the 2018-19 fiscal, which will increase to Rs 1462 crore in 2019-20. "The government decision will lead to greater adoption of digital payment modes for such transactions", he said.