Merchant Discount Rate

  • MDR is charge or fee imposed on merchant by bank for accepting payment from their customers in credit and debit cards every time card is used for payments (like swiping) in their stores.
  • MDR charges are usually shared in pre-agreed proportion between them and are expressed in percentage of transaction amount.
  • MDR compensates bank issuing card, bank which puts up swiping machine (Point-of-Sale or PoS terminal) and network providers such as Mastercard or Visa for their services. 
  • In India, the RBI specifies maximum MDR charges that can be levied on every card transaction.
  • According to recent RBI notification, from January 1 2018, small merchants will pay a maximum MDR of 0.40% of bill value and larger merchants will shell out 0.90%. RBI has also set monetary cap at Rs.200 per bill for small merchants and Rs.1,000 for large ones.
  • As per RBI rules, merchant has to pay MDR out of his own pocket and cannot pass it on to the customer.
  • Why in news? The Union Cabinet has decided that Government will borne Merchant Discount Rate (MDR) charges on transactions up to Rs. 2,000 made through debit cards, BHIM UPI or Aadhaar-enabled payment systems (AePS) to promote digital transactions. It will be for two years with effect from 1 January, 2018 by reimbursing the same to the banks.

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