Digital India 2018: No charges on debit card transactions for up to Rs. 2,000

2017 was an exciting and fast-paced year for the payments industry with Fintechs, Banks, Card associations and the Government all driving new initiatives. While the year has come to a positive end, digital transactions are expected to grow in double digits through 2018.

And digital transactions might just set a new record this year as the government has announced that customers will not have to pay any transaction charges for payments made via debit card, BHIM app or any other payment method for up to Rs. 2,000.

While this might be good news for consumers but ultimately what we can say is that this is basically another move from the government to boost digital payments. The decision was taken at the Cabinet meeting chaired by Prime Minister Narendra Modi.

"Merchant Discount Rate (MDR) applicable on all debit card/BHIM UPI/ AePS transactions up to and including a value of Rs. 2,000 to be borne by Government for 2 years with effect from 1 January 2018," Union Law Minister Ravi Shankar Prasad told media earlier.

The government official had further stated, "As a result of this approval, for all transactions less than Rs. 2,000 in value, the consumer and the merchant will not suffer any additional burden in the form of MDR thereby leading to greater adoption of digital payment modes for such transactions."

Meanwhile, MDR for debit cards was first fixed at 0.75 percent for transactions up to Rs. 2,000, while for transactions above Rs. 2,000, MDR was 1 percent. However, with the new policy in place, the merchant discount rate (MDR) will be completely handled by the government for two years by reimbursing the same to banks. The move will have an impact of Rs. 2,512 crore on the exchequer.

In any case, with the government providing such services this could be welcome break-away from the traditional dependence on cash. Besides, following demonetization and Digital India initiative digital payments and methods have reached a new high, increasing in reach, volume and value. A large number of new consumers have adopted the new way and it seems that more will be adopting the system in 2018.