Recently, Union Cabinet approved an outlay of ₹2,600 crore to promote payments using RuPay cards and the Unified Payments Interface (UPI) and the fund will be paid to banks in view of the lack of a Merchant Discount Rate (MDR) for UPI and RuPay transactions.
Why in news?
- The government had abolished MDR on transactions using RuPay debit cards and Unified Payments Interface (UPI) from January 1, 2020.
What is Merchant Discount Rate (MDR)?
- MDR also referred to as the transaction discount rate (TDR) is basically a fee that a merchant is charged by their issuing bank for accepting payments from their customers via credit and debit cards.
- Before accepting debit and credit cards as payment the merchant must set up this service and agree to the rate.
- MDR compensates the bank issuing the card, the bank which installs the PoS (Point of Sale) terminal and network providers, and payment gateways for their services.
- The MDR sums up all the charges and taxes that electronic or digital payments entail.
- For example, the MDR can consist of bank fees that are charged to customers and vendors for making payments digitally. In the same way, MDR also includes transaction processing costs that the payment aggregator will pay to virtual or mobile platforms or to banks.
- MDR charges are expressed as a percentage of the transaction amount.
- The rates are dependent on the level of business transactions being processed, the types of cards (debit or credit) used by customers, and the value of the average transaction (also known as average tickets or average sales).
Q1) What is UPI?
UPI stands for Unified Payments Interface. It is a real-time payment system developed by the National Payments Corporation of India (NPCI) to facilitate inter-bank transactions in India.