Union cabinet on Friday decided to reimburse the Merchant Discount Rate (MDR) applicable on transactions worth Rs 2,000.
 
Briefing media persons about the cabinet decision, Minister of Electronics, IT and Law and Justice Ravi Shankar Prasad said the government will reimburse the MDR on conducted via debit cards, UPI and Aadhaar-based transactions.
 
About the government decision, an ANI tweet said, "Merchant Discount Rate (MDR) applicable on all debit card/BHIM UPI/ AePS transactions up to and including a value of Rs 2000 to be borne by Government for 2 years with effect from 1 January, 2018 by reimbursing same to the banks, decides Union Cabinet"
 

 
"The government today has taken a very major decision to accelerate digital payments in the country -- MDR charges -- up on transactions worth Rs 2,000 shall now be reimbursed by the government to the merchants and the banks," Prasad told media persons.
 
Earlier on December 13, the government has stated that it will hold deliberations with the Reserve Bank of India to work out a mechanism for bringing down the MDR which was increased from 0.25% to 0.90% by the central bank during December policy meet.
 
A finance ministry official told PTI, "Most merchants will be discouraged to use POS machines, especially small merchants who do not get input tax credit in GST. This will discourage them from using POS machines."
 
The RBI rationalised the framework of Merchant Discount Rate (MDR) into three category for  debit cards transaction.
 
As per the RBI's new guidelines, small merchants having turnover upto Rs 20 lakh will charge card transactions at POS not exceeding 0.40% (MDR cap of Rs 200 per transaction).
 
In case of QR-code based card acceptance, these small merchants will charge a customer with MDR not exceeding 0.30% which is cap of Rs 200 per transaction.
 
Meantime, other merchants having turnover above Rs 20 lakh will charge MDR of 0.90% (MDR cap of Rs 1000 per transaction) at POS including online card transaction, while QR-code based card will be charged at 0.80% (MDR cap of Rs 1000 per transaction).
 
In reaction to this upward revision, the Retailers Association of India (RAI) stated, "In retail business, especially a supermarket or hypermarket where margins are between 2 per cent and 3 per cent, such an increase in MDR will have a huge impact on costs, making it imperative for retailers to pass it on to the consumer."
 
Reports says around 27-28 crore transactions take place per month on the Point of Sale (POS) machines having an average size of Rs 1,500.
 
As on September 2017, usage at POS stood at 26.53 crore transactions totalling up to Rs 36,629 crore, RBI data said.