The study done by the Indian Institute of Technology Bombay further suggested that there could be an upper ceiling of Rs 150 for a prescribed merchant discount rate (MDR) of 0.6 per cent.
“To encourage digital payments where cash is a strong alternative, for small and medium merchants accepting POS based payments, and having annual turnover of at most Rs 2 crore, the MDR for all types of debit and pre-paid cards, for transactions up to Rs 2,000, could be fixed with a cap of 0.25 per cent, while for transactions exceeding Rs 2,000, the cap could be 0.6 per cent,” it said.
Currently, for businesses with annual turnover of Rs 20 lakh or more, the debit card MDR is capped at 0.9 per cent of the transaction value or Rs 1,000, whichever is lower.
To maintain parity, alongside the revision of MDR caps, the extant mandates that currently promote excessive free cash withdrawals should be revised, it said.
It is to be noted that to promote small ticket debit card merchant transactions up to Rs 2,000, the government during 2018 and 2019 made MDR zero for the merchants, and provided banks a monetary support, towards MDR at the rate of 0.4 per cent.
In contrast, effective January 1, 2020, the government made MDR zero for every transaction using RuPay debit cards alone.
Neither merchants nor the government paid the banks any MDR for such merchant transactions. However, banks were allowed to impose MDR on the merchants for every transaction using mastercard/VISA debit cards, it said.
The study also made a strong case for removing Goods and Services Tax (GST) on POS machines with the overall objective of enhancing infrastructure for digital transactions.
The discriminatory approach adopted by the card payment networks to supervise their own ‘no surcharge rule;, for credit cards, needs to be addressed by regulator RBI, it said.
RBI needs to promote static Bharat QR with caution because of its associated shortcomings of the usage of expensive credit/debit cards. Separating out BHIM-UPI QR embedded in static Bharat QR could mitigate possible negative sentiments towards QR codes, it said.
The regulator should consider using the Payments Infrastructure Development Fund (PIDF) to promote BHIM-UPI or similar payment products, it said, adding, RBI and the government should consider promoting extensive radio and television awareness campaigns for the mobile based BHIM-UPI or similar payment products.