In an effort to increase cashless payment in India The Reserve Bank of India has decided to cut the fees that banks charge a retailer to process a debit card payment. With effect from July 1, 2012 the merchant discount rate (MDR) charged by banks will be cut to 0.75 per cent for transactions up to Rs 2000 and 1 per cent for transactions above Rs 2000. At present banks charge a fee of 1.8 per cent to 2 per cent for all transactions be it a credit or a debit card.
While debit card is used as per the availability of funds, credit card usage is linked to the credit limit sanctioned by the issuer. According to RBI, given the nature of both the cards it does not provide a rationale as to why charges should be similar.
The emphasis on cashless payments can also be seen in the ‘RBI Payments Systems Vision Document 2012-15’ that says that cash remains the predominant payment mode used in the country. Similarly, the number of non-cash transaction per citizen is very low in India when compared to other emerging markets. The main focus of the Vision Document is to provide a thrust to modern electronic payments that are safe, simple and low-cost for use by all. And for non-cash payments to proliferate, they should be easy to use, readily available and accepted, should not impose any undue financial burden on the merchant and user, and should offer an appropriate level of security.
While this move would encourage all categories and types of merchants to deploy the card acceptance infrastructure and also facilitate acceptance of small value transactions, it raises a big question – What about the viability of payment gateways? How does it impact them? While one may say it won’t pinch payment gateway’s a lot because credit cards are not under this purview, the fact is that here are 280 million debit cards and only 20 million credit cards. And now with MDRs slashed they are up for a tough time. Or are they?
What are your thoughts?