Govt to bear MDR cost of card transactions of value up to Rs2,000 for 2 years

The central government will bear transaction costs applicable to debit card / BHIM UPI / Aadhaar enabled payment system (AePS) for a value up to and including Rs2,000 for a period of two years beginning 1 January 2018, an official release stated today.

A meeting of the union cabinet headed by Prime Minister Narendra Modi today decided that the merchant discount rate (MDR) applicable on all debit card/BHIM UPI/ Aadhaar enabled payment system (AePS) transactions up to and including a value of Rs2,000 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 release said.

The reimbursement of MDR in respect of transactions less than Rs2,000 in value is estimated to cost the government roughly Rs1,050 crore in FY 2018-19 and Rs1,462 crore in FY 2019-20, the release added.

A committee comprising secretary in the department of financial services, secretary, ministry of electronics and IT and the CEO, National Payment Corporation of India (NPCI) will look into the industry cost structure of such transactions which will form the basis of determining the levels of reimbursement.

''As a result of this approval, for all transactions less than Rs. 2000 in value, the consumer and the merchant will not suffer any additional burden in the form of MDR thereby leading to greater adoption of digital payment modes for such transactions,'' the release said, adding, ''Since such transactions account for sizeable percentage of transaction volume, it will help to move towards a less cash economy.''

When payment is made at a merchant point of sale, MDR is payable by the merchant to the bank. Citing this, many people make cash payments in spite of having debit cards. Similarly, MDR is charged on payments made to merchants through BHIM UPI platform and AePS.