Bank interchange fee for merchants, known as the merchant discount rate (MDR), is being reduced for debit cards, according to this Reserve Bank of India (RBI) notification. Following the demonetization of Rs 500 and Rs 1000 notes, the RBI said that from January 1st to March 31, 2017, banks will be able to charge merchants the following:

– For transactions up to Rs 1000, MDR charged to merchants shall be capped at 0.25% of the transaction value.

– For transactions above Rs 1000 and up to Rs 2000, MDR shall be capped at 0.5% of the transaction value.

Earlier, the debit card MDR for banks was capped at 0.75% of the transaction amount for value up to Rs 2000 and not exceeding 1% for transaction amount for value above Rs 2000. But note that following the demonetization, several banks including SBI, ICICI Bank, Axis Bank and Yes Bank have waived MDR charges on debit card transactions till December 31.

Debit cards are the second largest payment instrument in the country with more than 700 million cards in circulation. Last month, the National Payments Corporation of India (NPCI) waived off switching fees for all RuPay cards for ecommerce and PoS terminal transactions.The NPCI added that the switching fee would be refunded to both issuing and acquiring banks before January 31, 2017. An issuing bank is the bank which issues a debit card while an acquiring bank is the bank which accepts the payment from a merchant.

To boost usage of debit and credit cards for small value transactions, the government waived off service tax for transactions up to Rs 2,000. This exemption applies only to the Merchant Discount Rate (MDR) which banks levy on merchants and not on the whole Rs 2,000. Additionally, this will apply only to the acquiring banks.

Also read: Why it is difficult to scale POS machines in India

USSD, UPI transfer fees waived

Separately, the RBI also informed  that all banks and Prepaid Payment Instrument (PPI) issuers will not levy any charges on customers for transactions up to Rs 1000 settled on the Immediate Payment Service (IMPS), USSD-based *99# and Unified Payment Interface (UPI) systems. These changes will be in effect from January 1, 2017 and shall be applicable till March 31, 2017.