Retailers Say Higher Merchant Discount Rate Nearly Doubles Costs
Retailers say an increase in merchant discount rates will make it imperative for them to pass it on to the consumer.
Retailers are lamenting the Reserve Bank of India’s upward revision of merchant discount rates, the rate merchants pay banks per card transaction, claiming it has nearly doubled their costs.
The RBI on Dec. 6 revised the MDR for debit card transactions at large format retail stores from 0.5 percent per transaction to 0.9 percent (not exceeding Rs 1,000).
While the RBI said the rates have been rationalised to increase the acceptance of debit cards by a wider set of merchants, the increase and the high cap defeat the purpose as it almost doubles the cost borne by merchants, the Retailers Association of India said in a statement.
In a retail business, especially a supermarket or hypermarket where margins are between 2 percent and 3 percent, such an increase in MDR will have a huge impact on costs, making it imperative for retailers to pass it on to the consumer.Retailers Association of India Statement
Since a debit card transaction is a direct debit from the bank account of consumer, there is no credit risk for the issuing bank, it pointed out.
"In addition, the RBI has set the maximum limit for MDR at Rs 1,000, which is unrealistic as it means the transaction size is nearly Rs 1.1 lakh," RAI Chief Executive Kumar Rajagopalan said.
Going by the norms in other countries such as China, MDR should not exceed Rs 40 per transaction, he said.