In December, post-demonetisation, the RBI had said that 

Merchant Discount Rates (MDR) charges on payments made through debit cards will be capped at 0.25 per cent for transactions up to Rs 1,000 and 0.5 per cent between Rs 1,000 and 2,000 for the period January 1-March 31. 

The RBI also did away with levies on small transactions through mobile phones till March-end. 

Since September 2012, the MDR for debit card purchases had been capped at 0.75 per cent for transactions up to Rs 2,000 and 1 per cent for above Rs 2,000. However, there is no RBI cap on MDR on credit card payments. 

MDR, or Merchant Service Fee (MSF), is the fee charged to the merchant by the financial institution/ bank which has set up the PoS or card acceptance machine at the merchant location for use of this infrastructure. 

"RBI could not rationalise the MDR charges since last year despite floating a consultation paper. RBI has not been able to regulate it and it should be separated," the source said, adding that even while UPI or United Payment Interface, just entails payment transfer, the banks are charging money. 

"They are taking it more as a revenue model rather than an integral part of banking. If there is a separate regulator, then the regulations will not be bank-focused," the source said. 

Though the regulatory policy on MDR (issued in September 2012) had indicated a cap on it, it is generally treated as floor, with the benefit of lower MDR not really accruing to smaller merchants. 

"In certain segments like mutual funds, insurance, etc., a flat fee structure of charges has also been established by the industry," the RBI had said in the concept paper. 

Therefore, cash continues to be the predominant mode of payment as it appears to be 'costless' in comparison to the visible costs associated with card/ electronic payments.

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