Government to bear debit, credit card payment transaction costs
What's the story
On Tuesday, a memorandum issued by the finance ministry stated that the Government will bear the transaction cost for all payments made to it through debit or credit cards and net banking. Presently, customers bear the transaction cost, called merchant discount rate, on payments made to the Government. It is an attempt to promote credit/digital transactions in Government payments and create a less-cash economy.
Definition
Merchant Discount Rate
MDR is the rate charged to a merchant by a bank for providing debit and credit card services. It is determined by factors such as volume, average ticket price, risk and industry. The merchant must agree to the bank's rate prior to accepting card payments.
Information
RBI's efforts to promote a 'less-cash society'
In September 2012, RBI had capped MDR for debit card transaction at 0.75% for transaction values up to Rs.2,000 and at 1% for transaction values above Rs.2,000. There was no RBI cap on MDR in credit card payments. In order to develop a card acceptance infrastructure, in March 2016, RBI came out with a concept paper to encourage card transactions and sought public opinion.
Quote
Measure to curb black money channels
Arun Jaitley in his 2015 budget speech stated,"Black money flow can be curbed by discouraging transactions in cash. Since, majority Indians have a RuPay debit card, I, therefore, propose to introduce measures that will incentivize credit or debit card transactions".
Guidelines
Methodology for reimbursement to be released soon
The Government has set up a task force under department of investment and public asset management secretary Neeraj Gupta. The task force on promotion of payments through cards and digital means has flagged issues with respective Government departments. The methodology for reimbursement of payments to intermediaries on transactions involving digital means is being worked-out and detailed guidelines and operational modalities would be issued soon.