**Executive Summary:**
This Reserve Bank of India (RBI) circular outlines the rationalization of the Merchant Discount Rate (MDR) for debit card transactions, effective January 1, 2018. It categorizes merchants based on turnover and adopts differentiated MDR for QR code-based transactions, while setting a ceiling on maximum permissible MDR. Banks must adhere to these guidelines and ensure merchants do not pass MDR charges to customers.
**Key Points / Main Content:**
* **MDR Rationalization:**
* MDR for debit card transactions is rationalized to promote debit card acceptance and ensure business sustainability.
* Merchant categorization based on turnover (up to ₹20 lakh and above ₹20 lakh in the previous financial year).
* Differentiated MDR for QR code-based transactions.
* Ceiling on maximum permissible MDR for card present and card not present transactions.
* **MDR Rates:**
* Small Merchants (turnover up to ₹20 lakh):
* Physical POS infrastructure: Not exceeding 0.40% of transaction value, MDR cap of ₹200 per transaction.
* QR code-based: Not exceeding 0.30% of transaction value, MDR cap of ₹200 per transaction.
* Other Merchants (turnover above ₹20 lakh):
* Physical POS infrastructure: Not exceeding 0.90% of transaction value, MDR cap of ₹1000 per transaction.
* QR code-based: Not exceeding 0.80% of transaction value, MDR cap of ₹1000 per transaction.
* **Compliance and Enforcement:**
* Banks and authorized card payment networks must adhere to the directions.
* MDR levied on merchants should not exceed prescribed cap rates, irrespective of the entity deploying the card acceptance infrastructure.
* Merchants should not pass on MDR charges to customers.
* **Effective Date and Review:**
* Instructions effective from January 1, 2018, and subject to review.
**Impact Analysis:**
* **Scheduled Commercial Banks (including RRBs), Urban Cooperative Banks, State Cooperative Banks, District Central Cooperative Banks, Payment Banks, and Small Finance Banks:**
* *Impact:* Banks are required to implement the revised MDR framework, ensure compliance among merchants, and monitor transactions to prevent the passing of MDR charges to customers.
* *Action Required:* Update systems to reflect the new MDR rates, communicate changes to merchants, and enforce compliance.
* **Merchants:**
* *Impact:* Merchants will experience changes in MDR based on their turnover and the mode of transaction (POS vs. QR code). They are prohibited from passing MDR charges to customers.
* *Action Required:* Understand the new MDR rates applicable to their category, adjust pricing strategies accordingly, and ensure compliance with the prohibition of passing MDR charges to customers.
* **Card Network Providers:**
* *Impact:* Card networks must ensure their systems and processes align with the new MDR framework and that acquiring banks adhere to the regulations.
* *Action Required:* Update systems, communicate changes to member banks, and monitor compliance.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for monetary policy and regulation of the banking system.
Merchant Discount Rate (MDR): The fee charged to a merchant for accepting payments made via debit or credit cards.
Debit Card Transactions: Financial transactions made using a debit card.
Payment and Settlement Systems Act 2007: An act of the Indian Parliament that provides for the regulation and supervision of payment systems in India.
All Scheduled Commercial Banks: A category of banks in India that are listed in the Second Schedule of the Reserve Bank of India Act, 1934.
Urban Cooperative Banks: Primary cooperative banks located in urban and semi-urban areas.
Mumbai, Maharashtra: A city in Maharashtra, India, where the Central Office of the Department of Payment and Settlement Systems is located.
QR code: A type of matrix barcode that can be used for card-based transactions.
RBI/2017-18/105
DPSS.CO.PD No.1633/02.14.003/2017-18 December 06, 2017
The Chairman and Managing Director / Chief Executive Officers
All Scheduled Commercial Banks including RRBs / Urban Co-operative Banks /
State Co-operative Banks / District Central Co-operative Banks /
Payment Banks and Small Finance Banks /All Card Network Providers
Dear Madam / Sir,
Rationalisation of Merchant Discount Rate (MDR) for Debit Card Transactions
Please refer to paragraph 1 of Statement on Developmental and Regulatory Policies regarding
revised framework for Merchant Discount Rate (MDR) for Debit Card Transactions announced
in the Fifth Bi-monthly Monetary Policy Statement, 2017-18 by the Reserve Bank of India.
2. The Reserve Bank had specified the maximum MDR applicable to debit card transactions
vide its circular DPSS.CO.PD.No.2361/02.14.003/2011-12 dated June 28, 2012, which was
revised vide circular DPSS.CO.PD.No.1515/02.14.003/2016-17 dated December 16, 2016.
3. Based on consultations with stakeholders on the “Draft Circular - Rationalisation of Merchant
Discount Rate (MDR) for Debit Card Transactions”, as also taking into account the twin
objectives of promoting debit card acceptance by a wider set of merchants, especially small
merchants, and ensuring sustainability of the business for the entities involved, it has been
decided to rationalise the MDR for debit cards based on the following criteria:
a. Categorisation of merchants on the basis of turnover.
b. Adoption of a differentiated MDR for QR-code based transactions.
c. Specifying a ceiling on the maximum permissible MDR for both ‘card present’ and ‘card
not present’ transactions.
भुगतान और िनपटान �णाली िवभाग, क��ीयकायार्लय, 14वीमंिजल, क��ीयकायार्लयभवन,शहीदभगत�सहमाग,र् फोटर्, मम्ुबई - 400001
फोनTel: (91-22) 2264 4995; फैक् सFax: (91-22) 22691557; ई-मेलe-mail : cgmdpssco@rbi.org.in
Department of Payment and Settlement Systems, Central Office, 14th Floor, Central Office Building, ShahidBhagat Singh Road, Fort, Mumbai - 400001
�हदी आसानह,ै इसका�योगबढ़ाइए4. Accordingly, the maximum MDR for debit card transactions shall be as under:
Sr. Merchant Category Merchant Discount Rate (MDR) for debit card
No transactions (as a % of transaction value)
Physical POS QR code-based card
infrastructure including acceptance infrastructure
online card transactions
1. Small merchants Not exceeding 0.40% Not exceeding 0.30%
(with turnover upto ₹ 20 (MDR cap of ₹ 200 per (MDR cap of ₹ 200 per
lakh during the previous transaction) transaction)
financial year)
2. Other merchants Not exceeding 0.90% Not exceeding 0.80%
(with turnover above ₹ 20 (MDR cap of ₹ 1000 (MDR cap of ₹ 1000 per
lakh during the previous per transaction) transaction)
financial year)
5. A reference is invited to our circulars DPSS.CO.PD. No. 639/02.14.003/2016-17 dated
September 1, 2016 on unbundling of MDR and DPSS.CO.PD.No. 2894/02.14.003/2015-2016
dated May 26, 2016 on putting in place a Board approved policy for merchant acquisition. It is
reiterated that the banks and authorised card payment networks shall strictly adhere to the
above directions. Further, banks shall ensure that the MDR levied on the merchant shall not
exceed the cap rates as prescribed above, irrespective of the entity which is deploying the card
acceptance infrastructure at the merchant location.
6. Banks are also advised to ensure that merchants on-boarded by them do not pass on MDR
charges to customers while accepting payments through debit cards.
7. The above instructions shall be effective from January 1, 2018. These instructions are
subject to review.
8. The directive is issued under Section 10(2) read with Section 18 of Payment and Settlement
Systems Act 2007, (Act 51 of 2007).
Yours faithfully
(Nanda S. Dave)
Chief General Manager-in-charge
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