The Reserve Bank of India seal appears on a gate outside the RBI headquarters in Mumbai. Photo: Reuters

In a move that could affect India’s push toward cashless transactions, the central bank has made it clear it will stay firm on recent revisions to the merchant discount rate (MDR), a fee paid by merchants to a bank for providing debit and credit card services, Business Standard has reported.

Retailers across the country have protested against the Reserve Bank of India’s (RBI) move to “rationalize” the MDR based on the turnover of each merchant establishment.

Under the revised rule, merchants with a turnover of more than Rs 2 million (US$31,100) will have to pay a maximum MDR of 0.9% of the transaction value to banks. But for smaller establishments, the MDR would be 0.4% of the transaction value. The RBI said on Wednesday that it would stay firm on recent revisions to the merchants’ fee.

RBI Deputy Governor BP Kanungo said the Retail Association of India did not provide feedback to the draft guidelines on charges when it was put out. However, he said he would be meeting them soon to articulate the issues that they have, the daily added.

Kanungo said banks also needed to be adequately compensated for the infrastructure that they put out. The present set of charges would help ease those cost pressures and encourage the banks to build up further infrastructure. The MDR is also a portion of the fee paid by the merchant acquiring bank to the card-issuing bank in the form of an interchange fee. It is not levied on customers.

The Retail Association had earlier written to the Reserve Bank governor, requesting the regulator to cap the MDR at Rs 40 (US$0.62) per transaction. It said the new MDR slabs would discourage merchants from going digital, as it would lead to higher costs.