Advertising boards for Paytm, a digital payment company, are seen at stalls of roadside vegetable vendors as they wait for customers in Mumbai. Photo: Reuters

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The Indian government’s move to waive merchant discount rate (MDR) charges for all debit card and digital transactions up to Rs 2,000 (US$31.22) is expected to boost cashless transactions.

The government will reimburse the same amount to banks for a period of two years, starting January 1, 2018.

The founder of digital payments group Paytm, Vijay Shekhar Sharma, welcomed the decision, saying he expected the move could get small merchants, who were avoiding digital payments because of the cost involved, to finally start accepting them, the Economic Times reported.

He felt the bigger challenge has been to get merchants to start accepting digital payments and not of consumers showing interest.

He said the popularity of QR codes was also growing and the recent government move would help the shift to mobile payments, led by QR codes. He estimated that around 70-75% of merchants now accept Paytm payments.

Earlier retailers across the country had protested a move by India’s central bank – the Reserve Bank of India – to charge MDR based on the turnover of the merchant establishment. The merchants claimed that the new MDR slabs would lead to higher costs and discourage them from going digital.

In order to break this deadlock, the government then announced its waiver on charges on debit cards and digital transactions of up to Rs 2,000 (US$ 31.22).

The issue of merchant discount rates has been debated since the demonetization of high-value currency in November 2016, which led to an increase in card transactions. While transaction volumes have risen, it was argued that such transactions remain more expensive than cash due to the high MDR.

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