The Reserve Bank of India (RBI) gave final guidelines on the rationalization of the merchant discount rate (MDR) for debit cards on Wednesday and introduce a differentiated regime for acceptance via alternative means such as QR codes. The RBI said that it introduced this to improve the acceptance of debit cards in the country by small merchants.

MDR is an inter-bank exchange fee that banks charge merchants for enabling digital transactions.

Accordingly, the MDR for debit cards will be:

  • Small merchants (with a turnover up to Rs 20 lakh during the previous financial year) will have to pay a maximum of 0.4% of a transaction on a physical POS or online. This will be capped at Rs 200 per transaction.
  • Small merchants who use QR code-based card acceptance infrastructure such as BharatQR will have to pay 0.3% of a transaction. This will be capped at Rs 200 per transaction.
  • Other merchants (with a turnover of over Rs 20 lakh during the financial year) will have to pay a maximum of 0.9%. This will have an MDR cap of Rs 1000 per transaction.
  • Other merchants who use QR code-based card acceptance infrastructure such as BharatQR will have to pay 0.8% of a transaction. This will be capped at Rs 1000 per transaction.

The rates will come into effect on January 1, 2018. 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.

BharatQR and UPI

In August, the National Payments Corporation of India (NPCI) merged QR codes generated by the UPI will be merged with the ones generated by BharatQR. NPCI instructed member banks to ensure that their applications be equipped to read both UPI QR as well as BharatQR by 15th September 2017. Essentially, it instructed banks and payment players to embed UPI credentials on BharatQR and vice versa.

The UPI and BharatQR have different merchant discount rates (MDR) so it will be a challenge for card networks and the NPCI to sort out where the transaction is originating and charge merchants accordingly. On the UPI, merchants are charged a merchant discount rate (MDR) of 0.25% for payments below Rs 1,000 and 0.65% for all other charges.