Government to bear MDR charges for digital transactions up to Rs.2,000

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In a move to encourage digital payments across the country, the government announced that it will bear the merchant discount rate (MDR) charges for all digital transactions up to Rs.2,000. This applies for any transactions made through debit cards, BHIM, UPI, or Aadhar-enabled payment systems. The Reserve Bank of India (RBI) announced earlier that it would rationalise the MDR charges for digital transactions.

MDR charges

According to IT minister Ravi Shankar Prasad, this decision has been taken to increase digital payments in the country. He added that a committee has been set up to ensure that this subsidy is not misused and the benefits are passed on to customers. The minister also noted that this move will help the country transform into a cashless economy. This decision on MDR charges was taken last Friday at a Cabinet meeting.

This decision will come into effect from January 1, 2018, and it will remain for the next two years. By bearing these charges, the government is expected to lose more than Rs.2,500 crore during this period. Nevertheless, the government is focusing on boosting digital payments in the country.

Following the note-ban by the government last year, digital transactions have surged significantly all over the country. Mobile wallets like Paytm have witnessed massive growth as a result of this initiative. Despite the overall growth in digital payments, many merchants are reluctant to use digital payments mainly because of the MDR charges associated with the transactions.

MDR refers to the charges incurred by merchants for digital transactions conducted through a ‘point of sale’ terminal. As of now, 0.5% of the transaction value is charged as MDR for transactions between Rs.1,000 and Rs.2,000. For transactions above Rs.2,000, 1% of the transaction value is charged.

The government is also expected to come up with a new framework for MDR charges incurred by merchants. Though the MDR charges are removed for debit cards, it will still apply for transactions conducted through credit cards.

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