Merchant Discount Rate

Context: The Payments Council of India (PCI), an industry body representing payment fintechs in the country, has requested finance minister to restore Merchant Discount Rate (MDR) for RuPay debit cards, as payment aggregator fintechs continue to lose on revenue lines for processing payments through the card infrastructure.

Merchant Discount Rate:

  • MDR (Merchant Discount Rate) refers to a fee that a merchant is charged by their issuing bank for accepting payments from their customers via credit and debit cards. ‌It is also known as Transaction Discount Rate (TDR). While the card-issuing bank gets a share of it, the remaining amount is distributed between the payment network and point-of-sale terminal providers. 

Push for Digitalisation: 

  • The Government had mandated that large businesses (With turnover greater than ₹50 crore) provide customers with low-cost digital modes of payment and had asked banks to levy zero charges on the same.
  • The finance minister gave this initiative a further push by mandating that no MDR charges will be applicable on digital transactions via the Rupay and UPI platforms. 

Concerns of Fintechs:

  • Payment aggregator fintechs are claiming that a loss of Rs 5,500 crore from no revenue being earned on UPI and RuPay debit card transactions. To compensate for this, the body has sought an incentive of Rs 4,000 crore in its representations to the ministry.
  • Zero MDR is also seen as a hindrance in attracting more players to adopt these payment modes and invest more in the development of the tech infrastructure to handle the huge volumes of transactions.

Prelims PYQ:

Q) Which one of the following best describes the term “Merchant Discount Rate” sometimes seen in news?

(a) The incentive given by a bank to a merchant for accepting payments through debit cards pertaining to that bank.

(b) The amount paid back by banks to their customers when they use debit cards for financial transactions for purchasing goods or services.

(c) The charge to a merchant by a bank for accepting payments from his customers through the bank’s debit cards.

(d) The incentive given by the Government to merchants for promoting digital payments by their customers through Point of Sale (PoS) machines and debit cards.

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Answer: c

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