Government to bear transaction cost on card payment

August 17, 2016 Hot from the Oven Valli Sarvani No comments

Government to bear transaction cost on cards payment

Good news to all who make payments via cards. Government is planning to bear the transaction cost soon for all card payments including debit card and credit card to facilitate less cash transactions. This applies to payments made using net banking as well. Customers need to bear the transaction cost that is merchant discount rate (MDR) at present on the card payments made to the government.

It is estimated that around 61.5 crore debit card users and 2.3 crore credit card holders existed in the country as of October 2015. In order to move the economy towards less-cash transactions, government is mulling to bear the MDR.

Finance ministry issued a memorandum on the transaction cost that is borne by the customers at present stating that government departments will make appropriate steps to bear MDR like other merchants. A methodology would be implemented after proper working out of guidelines and operational modalities to reimburse the payment to intermediaries. This includes the transactions of digital means including card transactions that are made with debit card and credit card and net banking transactions.

A circular has been issued by the finance ministry to pursue the decision of the government to boost digital transactions in government payments and collections. The government established a task force in the past. The task force is working under the Department of Investment and Public Asset Management (DIPAM) Secretary Neeraj Gupta.

In order to promote payments via cards or digital means, the Task Force has flagged certain issues with corresponding government departments. The merchant discount rate or MDR for debit card transaction is capped at 0.75 per cent for transactions of up to Rs 2,000 by the Reserve Bank of in 2012. The MDR is 1 per cent for transactions of above Rs 2,000. There is no RBI cap on MDR on the payments of credit cards. To encourage digital means and reduce cash transactions the RBI proposed a concept on paper in March and sought the opinion of public.

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