With a view to encourage usage of debit card, the Reserve Bank of India (RBI) further reduced the Merchant Discount Rates (MDR) for debit card transactions. 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.
For merchants with turnover of up to Rs 20 lakh, the MDR has been capped at 0.40% if the transaction involves physical infrastructure such as a swipe machine. If the transaction is conducted via a QR code, the MDR has been further reduced to 0.30%. Regardless of the value of the transaction, the MDR for such merchants can not exceed Rs 200 per transaction.
For merchants whose annual turnover exceeds Rs 20 lakh, the MDR has been capped at 0.90% for swipe machine based transactions and 0.80% for QR code based sales, subject to a maximum of Rs 1000 per transaction. MDR for both debit & credit cards were same till June 2012, when the RBI first reduced MDR for debit cards to boost their usage for sales. Till then, debit cards were primarily used for cash withdrawals from ATMs. Consequently, MDR for debit cards were first fixed at 0.75% for transactions of amount up to Rs 2000, while for transactions above Rs 2000, MDR was 1%.
Following the demonetisation drive last year, when currency of Rs 500 and Rs 1000 denomination was withdrawn from circulation, MDR was further reduced for transactions up to Rs 1000, to 0.25% of the transaction value. For transactions above Rs 1000 but less than Rs 2000, MDR was kept at 0.50% of the transaction value.