Government wants cap on debit card charges

Unhappy with the RBI's recommendation, the government is seeking a cap on the merchant discount rates ( MDR), or the fee charged by banks for debit card transactions, to ensure that consumers are not discouraged from using plastic.

Last month, the RBI issued a draft circular, where it classified merchants into small and other categories with levy of 0.95% of the transaction size permitted.Small merchants can levy up to 0.4% of the transaction value as MDR. In any case, credit cards are not covered by the draft circular.

“This is too open-ended and good for banks. But it does not go down with the objective of reducing use of cash as consumers will have to pay extra for using debit cards,“ said an officer. The finance ministry is now in dialogue with the RBI to cap the fee to shield consumers.

Ideally, small transactions should be exempt from any fee and only beyond a certain value a charge should be levied, said sources. “There is a cost of managing cash and even making and receiving payments by cheques. We need to incentivise new tools of payment,“ said a source.

In addition, sources in the government are suggesting a cap on amount that banks or the card issuers can charge.“It should not be more than Rs 100-200. You are providing a service for which the effort does not go up because the size of transaction rises. After all, it's only a device that is being used,“ said another source.

The government has been pushing the use of non-cash payments, including debit and credit card, since PM Narendra Modi announced the scrapping of old Rs 500 and Rs 1,000 notes. While charges had been suspended amid cash scarcity in the economy , banks are back to levying fees.