Historically, merchant-acceptance fees for credit and debit cards in India have been the same. This week, the Reserve Bank of India changed that when it informed banks and networks the merchant discount rate for debit cards cannot exceed specified amounts. Effectlvely cutting the rate by 50%, the RBI is making an aggressive move to lower the barrier for card payment acceptance. This strategy aligns with the country’s efforts to improve financial inclusion through creating a universal identification card that also can be used to access state welfare benefits. Without broad merchant acceptance for debit cards, any such issuing strategies will face steep on-ramps.
From the Times of India:
In a circular issued to all banks and card payment networks, RBI has said that from July 1 the merchant discount rate – the fees charged to shops by card companies – on debt cards should not exceed 0.75% for transactions up to Rs 2,000 and below 1% for value above Rs 2,000. At present, banks charge the same fees which range from 1.8-2% irrespective of whether the payment is by debit or credit card.
Improving merchant card acceptance flushes out across the payments ecosystem and is a critical step towards creating a modern electronic payment infrastructure. What is not clear in the ruling, however, is which entity is being regulated: card networks, acquirers or issuers. Regardless, India joins a growing list of countries where debit card transactions are viewed as commoditized transactions required for access to daily spending accounts rather than enhanced payment products.
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