Govt bans levy of MDR fee on payment via RuPay, UPI; to boost cashless transactions

Union Finance Minister Nirmala Sitharaman, in a review meeting with chiefs of Public Sector Banks (PSBs), Indian Banks' Association and representatives of leading private sector banks, on Saturday announced customers and merchants will no longer pay MDR (merchant discount rates) fee, a move that will provide a big boost to online transactions in India.

MDR is the cost paid by a merchant to a bank for accepting payment from their customers via credit or debit cards every time a card is used for payments in their stores. The merchant discount rate is expressed in percentage of the transaction amount. The MDR is distributed among three stakeholders - bank, PoS machine vendor and card companies - and varies from 0-2 per cent on credit card transactions.

From January onwards, all companies with a turnover of Rs 50 crore or more need to provide the facility of payment through RuPay Debit card and UPI QR code to their customers, under which no MDR fee will be charged from customers as well as merchants. The RBI and banks will absorb these costs from the savings that will accrue to them on account of handling less cash as people move to the digital modes of payments.

All banks will soon start a campaign to popularise RuPay Debit card and UPI, a government statement said. Though the move will benefit customers, multinational electronic payments companies like Visa and Mastercard are likely to face losses. Experts believe the move could affect credit card companies in the long run as more people will be influenced to make payment through cheap UPI platforms.

The FM in her 2019-20 Budget speech had said business establishments with annual turnover of more than Rs 50 crore will offer low-cost digital modes of payment (such as BHIM UPI, UPI QR Code, Aadhaar Pay, debit cards, NEFT, RTGS etc) to their customers, and that no charge or merchant discount rates (MDR) will be imposed on customers as well as merchants. Sitharaman also proposed to insert a new section into the Income Tax Act, under which violators will have to pay a suitable penalty.

Edited by Manoj Sharma

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