Promoting less-cash economy: Govt to reimburse MDR on transactions up to Rs 2,000

The government will bear the MDR charges on transactions up to Rs 2,000 made through debit cards, BHIM UPI or Aadhaar-enabled payment systems to promote digital transactions, IT Minister Ravi Shankar Prasad said on Friday. 

The merchant discount rate (MDR) will be borne by the government for two years with effect from January 1, 2018 by reimbursing the same to the banks. The move will have an impact of Rs 2,512 crore on the exchequer. The decision was taken at the Cabinet meeting chaired by Prime Minister Narendra Modi, Prasad said. "For all the transactions less than Rs 2,000 in value, the consumer and the merchant will not suffer any additional burden in the form of MDR," the minister said, adding this will lead to greater adoption of digital payment modes for such transactions.

The minister said since such transactions account for seizable percentage of transaction volume, the decision will help move towards less-cash economy. When payment is made at a merchant point of sale, MDR is payable by the trader to the bank. Citing this, many people make cash payments in spite of having debit cards.

A committee comprising Secretary, Department of Financial Services, Secretary, Ministry of Electronics & IT, and the CEO, National Payment Corporation of India (NPCI), will look into the industry cost structure of such transactions which will form the basis to determine the levels of reimbursement, Prasad said. MDR is charged on payments made to merchants through BHIM UPI platform and AePS (Aadhaar enabled Payment System).