Lower fees on debit card payments for small shops
MUMBAI: Small merchants now have more reason to accept debit card payments. The RBI has fixed a lower merchant discount rate (MDR) — which refers to the fees paid to a bank on card payments — for businesses with a turnover of below Rs 20 lakh.
Under the new regime, the RBI has done away with the progressive charge structure that was introduced during demonetisation. Under the progressive structure, merchants paid more for higher value transactions irrespective of their scale of business.
Under the new dispensation, a small merchant will pay only 0.40% of the transaction value if his turnover for the previous year is below Rs 20 lakh. Besides this, the maximum fee has been capped at Rs 200. In other words, for all debit card payments above Rs 50,000, the merchant will pay a flat fee of Rs 200. For larger retailers (turnover above Rs 20 lakh), the charges are more than double at 0.90% of the transaction value. The maximum fee for large businesses has been capped at Rs 1,000.
The new charges have cheered debit card-issuing banks. These had earlier complained to the RBI that they were subsidising big retail, including luxury chains who received most of their payments by card. The MDR is marginally lower when the customer makes the card payment by using an app that scans a QR code at the merchant.
However, payment companies in the acquiring segment — firms that build the payment-acceptance infrastructure — are worried. This is because there is no direction on how the MDR is to be shared among various players. Typically, it is the cardissuing banks that call the shots and grab a lion’s share of the fee in the form of interchange. PayU CEO Amrish Rau said, “The move to support debit card transactions is a welcome one, especially for markets where credit card penetration is low. However, the fees associated with bank interchange are very high. If the interchange is capped at 50% of the MDR, there will be scope to reduce the MDR further.” PayU is one of the largest online payment service providers.
According to Visa India country manager T R Ramachandran, the new charges will catalyse the expansion of acceptance infrastructure and energise asset-light methods of payments such as BharatQR. “With over 800 million debit cards and over 40 million consumers already using mobile banking apps, almost every household in India now has access to a digital form of payment,” said Ramachandran.
After demonetisation in December 2016, the RBI had capped the MDR on debit card payments of above Rs 2,000 to a maximum of 1% of the transaction value. For transactions up to Rs 1,000, the MDR was capped at 0.25% and for transactions between Rs 1,000 to Rs 2,000, the MDR was capped at 0.50%. Banks were unhappy with these charges because average debit card payments were below Rs 2,000.