Draft Circular: Rationalisation of Merchant Discount Rate for Debit Card Transactions

Press Releases  Date : Feb 16, 2017

Reserve Bank of India seeks Comments on Draft Circular on Rationalisation of Merchant Discount Rate (MDR) for Debit Card Transactions

The Reserve Bank of India has today placed on its website for public feedback the draft circular on rationalisation of Merchant Discount Rate (MDR) for debit card transactions. The comments/ suggestions/ feedback, if any, may be sent by post to the Chief General Manager, Department of Payment and Settlement Systems, Reserve Bank of India, Central Office Building, 14th Floor, Shahid Bhagat Singh Road, Mumbai – 400 001, or by email on or before February 28, 2017.

Recent developments have given a fillip to electronic transactions including card payments even at smaller merchant establishments. Keeping this in mind, for encouraging a wider segment of merchants to accept card payments, consultations were held with stakeholders for rationalising the MDR structure for debit card transactions. This draft circular is the culmination of these discussions and seeks a shift from the present slab-rate MDR based on transaction value to merchant turnover based MDR structure, for which merchants have been suitably categorised. Further, a differential MDR structure for asset light card acceptance infrastructure like QR Code, special merchant categories for government transactions and other transactions involving non-discretionary expenses have also been proposed. Banks are free to set the MDR below the regulatory caps indicated for each category.

Background

In March 2016, a concept paper was published on RBI website that spelt out various options for rationalisation of MDR structure along with strategies to enhance card acceptance infrastructure in the country. Further, on December 16, 2016, special measures pertaining to MDR on debit card transactions were introduced for a three month period from January 01, 2017 to March 31, 2017, wherein it was indicated that the framework for charges on electronic transactions will be reviewed in consultation with the stakeholders as it is imperative to formulate a longer term MDR structure while assessing costs incurred in card acquiring business.

Earlier, in June 2012, a regulatory cap was put in place on MDR for debit card transactions on ad-valorem basis.

Alpana Killawala
Principal Adviser

Press Release : 2016-2017/2218

DPSS.CO.PD.No.         /02.14.003/2016-17

February 16, 2017

The Chairman and Managing Director / Chief Executive Officers
All Scheduled Commercial Banks including RRBs / Urban Co-operative Banks /
State Co-operative Banks / District Central Co-operative Banks /
Payments Banks and Small Finance Banks /
All Card Network Providers

Dear Madam / Sir,

Draft Circular – Rationalisation of Merchant Discount Rate (MDR) for Debit Card Transactions

Recent developments, including the commitment to greater adoption of digital payments by Government, have given a big boost to migration to non-cash forms of payments. There has been an increase in card transactions (other than at ATMs) and the momentum has to be maintained especially amongst small merchants who have just begun to accept digital payments.

2. The Reserve Bank of India had published for public consultation in March 2016 a concept paper outlining strategies for enhancing card acceptance in the country along with the options for rationalisation of Merchant Discount Rate (MDR). The inputs received for this paper, along with interactions with the industry representatives, has reinforced the felt need for wider acceptance of card payments by merchants in general, with specific focus on rapid adoption by the smaller merchants. Similarly, there are also certain industry segments, particularly those dealing with non-discretionary expenses, which may benefit from a rationalised MDR structure.

3. A reference is invited to our circulars DPSS.CO.PD.No.2361/02.14.003/2011-12 dated June 28, 2012 capping the Merchant Discount Rates (MDR) structure for debit card transactions and DPSS.CO.PD.No.1515/02.14.003/2016-17 dated December 16, 2016 rationalising MDR for transactions value upto ₹ 2000/- for the period January 1, 2017 to March 31, 2017. In the latter circular, it was also indicated that in the intervening period, the Reserve Bank of India will review the framework for charges for electronic payment transactions, in consultation with the stakeholders.

Change in basis of MDR

4. Based mainly on consultations with various stakeholders, it has been decided to restructure MDR on the basis of merchant turnover rather than the present slab-rate based on transaction value. There is also a case for having a differential MDR for Government transactions and for certain special categories in view of the non-discretionary nature of those expenses, etc. Similarly, taking into account the need for encouraging asset-light digital infrastructure such as QR-code, there is a need to differentiate MDR between acquiring infrastructure involving physical terminals, including mPOS and digital acceptance infrastructure models such as QR Code. Similarly, in scenarios where the merchant is willing to pay upfront for the card acceptance infrastructure, the MDR has to be on the lower side.

5. Merchant categories:

5.1 The merchants shall be categorised as under:

Small merchants with turnover outside the ambit of GST (turnover less than ₹ 20 lakhs p.a.)Government transactionsSpecial category of merchantsAll other category of merchants with turnover within the ambit of GST (turnover above ₹ 20 lakhs p.a.)

5.2 The present GST limits have been considered for the above classification for transparency and uniformity. As and when the GST limits undergo a change, the same may be incorporated appropriately for merchant classification.

5.3 An indicative but not exhaustive list of merchants for special category and government transactions is given in Annex-1. While these categories have to necessarily be included under the special category, banks may add other categories of merchant to the list at their own discretion.

6. Merchant Discount Rate (MDR):

The maximum MDR for debit card transactions for different merchant categories shall be as under:

Sr. NoMerchant CategoryMerchant Discount Rate (MDR) for debit card transactions
(as a % of transaction value)Physical POS infrastructureDigital POS1.Small merchantsNot exceeding 0.40%Not exceeding 0.30%2.Special category of merchantsNot exceeding 0.40%Not exceeding 0.30%3.All other category of merchants (other than Government)Not exceeding 0.95%Not exceeding 0.85%4.Government TransactionsFlat fee of INR 5 for transaction value INR 1 to INR1000Flat fee of INR 10 for transaction value INR 1001 to INR 2000

MDR not exceeding 0.50% for transaction value above INR 2001 with cap of INR 250 per transaction

7. MDR for debit cards for petrol / fuel shall be decided subsequently after the industry consultation process with Oil Ministry is completed.

8. Further, a reference is also invited to our circulars RBI/2016-17/59 DPSS.CO.PD.No. 639/02.14.003/2016-17 dated September 1, 2016 on unbundling of MDR and RBI/2015-2016/410 DPSS.CO.PD.No.2894/02.14.003/2015-2016 dated May 26, 2016 on putting in place a Board approved policy for merchant acquisition. It is reiterated that the banks and authorised card payment networks may strictly adhere to the above directions. Further, banks shall ensure that all merchants display the signage “No convenience or service charge is payable by customers” apart from any other signage.

9. Card networks shall suitably revise the applicable interchange and network fees, preferably on percentage basis rather than any flat fee basis. Banks shall also appropriately rationalise the monthly rentals, if any, recovered from the merchants taking into account the type of card acceptance infrastructure deployed at merchant location.

10. The directive is issued under Section 10(2) read with Section 18 of Payment and Settlement Systems Act 2007, (Act 51 of 2007) and will be effective from April 1, 2017.

Yours faithfully

(Nanda S Dave)
Chief General Manager

Annex – 1

Merchant Category List with differential MDR Structure

Sr NoSpecial Merchant Category*1Utilities incl. Private Sector (Electricity, Water, Municipal Taxes). Excludes Telecom.2Education Sector (Govt. & Private sector). Coaching Classes excluded.3Hospitals (Only Government) and primary health care centres, Jan Aushadhi outlets4Agriculture and allied activities including fertilizers and seeds, nursery, farming equipment, APMCs and mandis, fisheries, milk cooperatives, vegetable mandis etc.5Cooperatives including KVIC6Army Canteens7State Transport& State Waterways; Toll collections8Insurance9Mutual Fund10PDS / Fair price shops11Places of Tourist Interest run by Govt. (ASI Monuments, Forest Dept./National Parks, Museums, Zoos & Aquariums, Govt. Libraries, Govt. Expositions etc.)Sr. NoGovernment Merchant Category*1GST, Income Tax, Customs Duty, other Government Taxes & Levies & Fines2MEA Passport Fees3Visa Fees (Indian Consulates & Foreign Consulates operating in India)4Railways – Ticketing and Passenger services5Duties and registration charges such as Property registration, Vehicle Registration, Stamp Duty, Road Tax etc. and any other Municipal taxes.

* Indicative, not exhaustive