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Know about Merchant Discount Rate
Jan 12, 2017

Merchant Discount Rate or MDR is a charge that merchants pay every time a debit card or credit card is swiped at their end for a transaction by a customer. This charge, typically 1% of the transaction, goes to the company that has installed the Point of Sale (PoS) machine, the network provider such as MasterCard, Visa or RuPay, and the card-issuing bank.

What is the controversy over MDR?

To promote cashless transactions following the scrapping of high-denomination currency notes, the government had waived the MDR on fuel purchases for consumers. But after the expiry of the 50-day window, banks decided to levy MDR on fuel pump owners, making them bear 1% on all credit card transactions, and between 0.25% and 1%on all debit card transactions from January 9. Petrol pumps across the country protested, deciding not to accept plastic money from customers for fuel purchases. Later, after the talks the issue being pending, but petrol pumps across the country agree not to take MDR from customers.

Why do banks levy MDR?

MDR is the main source of funding for card transactions for the issuing banks, network providers and the company or bank that has installed the PoS machines. The main component of the MDR is interchange—a charge that is paid by the company that has installed the PoS machines to the issuing bank. The MDR also funds the network fee and the cost incurred in running the PoS machines..


In a bid to push debit card transactions, the RBI on December 16 capped the MDR on transactions of up to Rs 1,000 at 0.25% and for those between Rs 1,000 and Rs 2,000 at 0.5%. The cap, RBI said, would be in place until March 31, 2017. However, last week, India’s largest lender, the State Bank of India, waived the MDR for all small merchants with a turnover of Rs 20 lakh or less for a year until December 31, 2017.

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