RBI Cuts Transaction Fee on Debit Card Payments

The Reserve Bank of India (RBI) lowered the fees that are charged by banks on a merchant for processing a payment done by debit card. Currently, both debit and credit card have same rate of commission which ranges between 2-3%. As per the circular issued by RBI to banks and card payment networks, the Merchant Discount Rate (MDR) has been limited to 0.75% for transactions up to Rs.2,000 and at 1% above that, with effect from September 1, 2012.

According to RBI, MDR for debit and credit cards have been similar in India. While debit card is a secured product, used as per the availability of the funds in bank account of the customer, the credit card is an unsecured product, for which its usage is linked to the credit limit sanctioned by the issuer.

So, for such two different products, there is no rationale in having a similar MDR. This move would encourage smaller retailers to accept debit cards and allow their customers to go for cash-less shopping. Recently, Finance Ministry has asked banks to make electronic fund transfer below Rs.1 lakh free of cost.