Why is MDR a percentage of transaction value
That way if I buy 50,000 washing machine on my credit card, the merchant should only incur 20 rupees. The 2% benefit could be passed to consumer as incentive for paying digitally.
LC please take this up with Govt. more
MDR is the cost paid by a merchant to a bank for accepting payment from their customers via credit or debit cards every time a card is used for payments in their stores. The merchant discount rate is expressed in percentage of the transaction amount. BusinessToday.in Last Updated: January 18, 2018 | more
MDR / transaction charges / convenience fee is now a days charged only by the government entities or government controlled (price control) entities. Everybody would have encountered this while paying utility bills, buying rail / airline tickets, while filling fuel, paying online fees etc. This is because their charges are fixed (and regulated) and MDR which gets added over and above the total bill amount is not factored in the cost. Hence they pass on the amount to the customer.
So while it is not possible to abolish MDR (till it is handled by private entities) it makes sense to charge as a percentage up to a ceiling and then fix it thereafter.
Actually the best step is for the RBI to take charge and ask the banks to take care of digital transactions and abolish MDR completely as has been done with ATM withdrawals, NEFT and RTGS. After all the money is moving between customer account and shopkeeper's account within the banks itself and banks are anyways making profit on our money. more