government will hold deliberations with the Reserve Bank to work out a mechanism for bringing down merchant discount rates (MDR) which have increased from 0.25 per cent of transaction value to 0.90 per cent recently, a finance ministry official said.

According to a senior finance ministry official, the surge in charges would impact Digital India movement so there is need to look into the issue.

"Most merchants will be discouraged to use POS machines, especially small merchants who do not get input tax credit in GST. This will discourage them from using POS machines," the official said.

There are around 27-28 crore transactions that are held per month on the Point of Sale (POS) machines with an average size of Rs 1,500.

Last year after demonetisation, RBI as a special measure had capped the MDR at 0.25 per cent of the transaction value for transaction up to Rs 1,000 and 0.5 per cent for transactions above Rs 1,000 and up to Rs 2,000.

The new norms announced by RBI a week ago, puts the MDR charges at 0.40 per cent if the transaction involves physical infrastructure such as a swipe machine for small merchants with turnover up to Rs 20 lakh during the previous financial year.

The MDR charges are capped at 0.90 per cent for other merchants limited to Rs 1,000 per transaction.

The RBI on December 6 revised the MDR for debit card transactions at large format retail stores from 0.5 per cent per transaction to 0.9 per cent (not exceeding Rs 1,000).

The Retailers’ Association of India (RAI) has also raised this issue with the government and the regulator. They have demanded that the MDR charge should be kept at 0.40 per cent and that the revised charges will increase the cost of merchants which they will have to pass on to consumers.

While the RBI said the rates have been rationalised to increase the acceptance of debit cards by a wider set of merchants, the increase and the high cap defeat the purpose as it almost doubles the cost borne by merchants, RAI said in a statement.

 14 Dec 2017, 06:46 AM