CHENNAI: A day after the Reserve Bank of India (RBI) revised the merchant discount rate (MDR) to encourage acceptance of debit cards at merchant outlets, the Retailers Association of India (RAI) said on Thursday that RBI’s move is ‘detrimental’ to merchants and is likely to erode the government’s push for digital economy.
The apex retailers’ body, which represents more than 1,000 organised retailers such as Future Group and Walmart India also plans to lobby the government against the RBI move.
“While RBI has mentioned in its circular that the rates have been ‘rationalised’ to increase the acceptance of debit cards by a wider set of merchants... the high cap set defeats the purpose as this increases cost to merchants by almost double,” said Kumar Rajagopalan, CEO, Retailers Association of India.
According to the guidelines issued on Wednesday, debit card transactions at merchants with turnover of up to Rs 20 lakh will attract an MDR of 0.4 per cent with a cap of Rs 200 per transaction. At large-format retail stores, MDR will be 0.9 per cent with a cap of Rs 1,000. Currently, MDR is 0.25 per cent for purchases below Rs 1,000 and 0.5 per cent for those between Rs 1,000 and Rs 2,000, while for amounts above that it’s one per cent, regardless of annual revenue.
RAI chief also pointed out that the average revenue of any kirana store is more than Rs 20 lakh (annually), which means they have to shell out 0.9 per cent to accept debit cards. “These stores, especially a supermarket or hypermarket where the margins are barely 2-3 per cent, differential MDRs across categories of merchants will have a huge impact on costs, which may eventually force retailers to pass on the burden to consumers.
“In addition, RBI has set the maximum limit for MDR at Rs 1,000, which is unrealistic as it means that the transaction size is nearly Rs 1.1 lakh,” he noted.
“In digital economy, there is no justification for levying charges for debit card transactions to this extent, especially when we consider that UPI transactions are free, and IMPS, NEFT and RTGS transactions cost next to nothing,” he said adding at the end of the day, it is a debit card and why should authorising a debit cost so much money when there is no credit risk for the issuing bank.
Meanwhile, analysts at domestic brokerage Kotak Securities also said that the move is ‘negative’ for merchants acquiring banks in the short-term as the surge in volumes is unlikely to make up for the losses.