No MDR on digital payments at outlets with turnover of Rs 50 cr

Banks and digital payment platforms will have to forgo merchant discount rate (MDR) on digital payments made at businesses with an annual turnover of Rs 50 crore and above with effect from November 1.

MDR is the rate charged to a merchant by banks and service providers for payment processing services on digital transactions. 

The move, aimed at boosting digital payments, means lower revenues for banks and digital payment services providers from high volume digital payments. 

The government had earlier made it compulsory for all businesses with an annual turnover of Rs 50 crore and above to provide payment options through electronic mode including debit cards, e-wallets and unified payment interface.

The government has invited applications from banks and payment service providers seeking to register their platforms as eligible electronic payment mode, said the income tax department in an official statement last week.

The government notification follows the announcement by finance minister Nirmala Sitharaman in the union budget for 2019-20 barring banks and digital payment platforms from charging MDR.

“RBI (Reserve Bank of India) and banks will absorb these costs from the savings that will accrue to them on account of handling less cash as people move to these digital modes of payment. Necessary amendments are being made in the Income Tax Act and the Payments and Settlement Systems Act, 2007 to give effect to these provisions,” Sitharaman had said in her maiden budget speech. 

In July, the Payment Council of India, an industry body of 100 payments and settlement systems, had opposed the change, saying it will lead to the collapse of the digital payments industry. It may also lead to banks recovering the charges from its fintech partners, an industry expert said.

Former Unique Identification Authority of India chairman Nandan Nilekani had earlier recommended that the RBI should periodically review the MDR rates charged by banks on digital payments.