In a significant move towards the promotion of digital transactions, businesses with an annual turnover exceeding ₹50 crore will now be obligated to offer low cost digital payment options to their customer base from 1st January, 2020. This implies that the Merchant Discount Rate (MDR) will no longer be levied on either customers or merchants. To ensure affordable transactions, these digital modes will incorporate a variety of platforms such as BHIM UPI, UPI QR Code, Aadhaar Pay, Debit Cards, NEFT, and RTGS. This proactive step is predicted to accelerate payments via the indigenous real-time payments system, Unified Payments Interface (UPI), in conjunction with RuPay debit cards at various merchant outlets.
Understanding the Merchant Discount Rate
The Merchant Discount Rate, commonly referred to as MDR, denotes the cost incurred by a merchant when they accept payment from their clientele through electronic means. The MDR is generally expressed as a percentage of the transaction amount and holds relevance in today’s era of expanding digitalization where online transactions and QR-based transactions have become commonplace.
Distribution of Transaction Cost
When a digital transaction is initiated, the amount paid by the merchant for each transaction is divided among three primary stakeholders. These include the bank that facilitates the transaction process, the vendor responsible for the installation of the point of sale (PoS) machine, and the card network provider. Leading examples of card network providers include reputable names in the industry such as Visa, MasterCard, and RuPay.
Expected Impact on Payment Methods
The government’s decision to mandate low-cost digital payment options for certain businesses and the removal of MDR charges are expected to stimulate a significant upsurge in the usage of UPI at merchant locations. Consequently, this will likely prompt a boost in the use of RuPay debit cards as well.
Key Details at a Glance
| Subject | Details |
|---|---|
| Applicable From | 1st January, 2020 |
| Annual Turnover Requirement | ₹50 Crore |
| Low Cost Digital Payment Modes | BHIM UPI, UPI QR Code, Aadhaar Pay, Debit Cards, NEFT, RTGS |
| MDR Fees | No longer applicable |
| Potential Impact | Boost in UPI and RuPay payments |
Paving the Way for a Digital Future
With this change, businesses are getting the push they need to stay abreast with the technological advancements and ever-growing popularity of digital payment systems. It also moves us one step closer to a completely cashless economy, promoting convenience, security, and overall efficiency of transactions for both businesses and consumers alike.
