Come January 2018, retailers can rejoice as they don’t have to pay Merchant Discount Rate (MDR) charges to banks on every debit card payment they receive.
The government’s recent decision to abolish MDR for small and medium retail merchants over the digital transactions through debit card up to Rs 2000 has come as a welcome relief for thousands of retail businesses across the country as they were finding hard to pay banks from their profits or charge extra from customers to offset the loss.
According to industry sources, the demand for Point Of Sale (POS) transaction machines from shop owners will go up sharply as the government’s decision to abolish MDR for two years from January 1, 2018 will encourage more to approach banks to install POS machines at their business locations.
According to Reserve Bank of India, the government’s push to popularize cash-less transactions has borne results as the number of POS machines used by merchants has gone drastically up to 3 million from the paltry 0.8 million machines a year ago.
Some of the merchants, whom this writer had contacted, expressed hope that such move would encourage more traders to adopt cashless transaction to lessen their burden on handling cash.
“I did not want to have POS machine earlier as I had no intention to charge extra from my customers in the name of bank transaction charges. But now, since the government has announced to bear the MDR charges for transaction up to Rs 2000, I will approach my bank to install a card transaction machine. For transactions above Rs 2000, since the RBI has reduced the charges now, it will not have any impact on our business in switching over to cashless transaction,” says Sudhir Chandra, who owns a grocery store in George Town in Chennai.
Welcoming the government move, Mr Bhaskar Venkatraman, CEO and Director of Millennium Soft-tech India, a pioneer in introducing POS machines to Indian retail businesses says, “Withdrawing MDR is the right move to bring India closer to cashless economy. We expect huge demand for POS machines from retailers in the coming quarters as more merchants will accept card transaction at POS billing counters.
Presently, the government has made debit card transaction free from MDR charges up to Rs 2000, which I feel should also be extended to credit cards to encourage more customers.”
As the average debit card transaction amount in India is below Rs 1500, accepting debit card will be almost equal to accepting cash for small retailers. But the government should take measures to prevent traders from misusing the subsidy, says Mohanraj, a customer at a famous retail chain in Chennai.
After demonetization and GST rollout, the government’s recent move to remove MDR charges for debit card transactions for two years is seen as the right step to encourage digital payments among customers and retail businesses.