Merchant Discount Rate

Merchant Discount Rate

Subject: Economy

Section: Monetary policy

Context: In a discussion paper released on Wednesday, the Reserve Bank of India (RBI) asked stakeholders if merchant discount rate (MDR)should be brought back for Unified Payments Interface (UPI) transactions.

Concept:

Merchant Discount Rate:

• MDR is the cost paid by a merchant to a bank for accepting payment from their customers via digital means– credit cards, debit cards, net banking and digital wallets.
• It is the rate levied on debit and credit card transactions to a merchant for the payment processing services. 
• The merchant discount rate is expressed in percentage of the transaction amount.
• The amount that the merchant pays for every transaction gets distributed among three stakeholders–the bank (60%)  that enables the transaction, the vendor that installs the point of sale (PoS) machine and the card network provider such as Visa, MasterCard, RuPay.
• From 1st January, 2020, businesses with an annual turnover of more than ₹50 crore offer low cost digital payment options to customers and Merchant Discount Rate (MDR) is not levied on either customers or merchants.
  • Low cost digital payment modes will include options such as BHIM UPI, UPI QR Code, Aadhaar Pay, Debit Cards, NEFT, RTGS, among others.
• Present MDR:
  • Currently, UPI payments do not attract merchant discount rates (MDRs),
  • For debit cards, MDR is capped at 0.9 per cent for transactions, except for RuPay debit card, which attracts zero MDR.
  • In the case of credit cards, there is no cap on MDR.
  • For wallets and prepaid payment instruments, the MDR is not regulated and may range from 1.5 to 2.5 per cent, and in some cases, even higher.