In a move that will encourage small shops to accept electronic payments, the government has decided to bear the charges merchants pay to banks on purchases of up to Rs 2,000 using a debit card, Bhim or Aadhaar, a media report said.
The subsidy will be available for a period of two years starting from January 1, 2018.
Given that the average debit transaction in India is below Rs 1,500, accepting debit cards will become almost as cheap as accepting cash for small merchants. Announcing the decision taken at the Cabinet meeting on Friday, IT minister Ravi Shankar Prasad said that the government was trying to accelerate digital payment in the country. He added that a committee of secretaries had been set up to ensure that there was no misuse of the subsidy and that benefits are passed on to traders and customers.
Every time a card is swiped, a merchant pays a fee to the bank. This fee is deducted by the bank while crediting the sale proceeds to the merchant's account and is called Merchant Discount Rate (MDR).
Last week the Reserve Bank of India had announced a revised MDR of 0.9% for large merchants and 0.4% for those with a turnover of below Rs 20 lakh per year.
While the charges for debit cards have been waived, payments by credit card will continue to attract MDR.
Prasad said that from April to September 2017, digital transactions using only debit cards was at Rs 2,18,700 crore. If the trend continues, the total transactions by April will amount to Rs 4,37,400 crore, a 100% increase. "The Rs 1,000-2,000 digital transactions are in the region of 15-20% of all digital payments. Though the total amount is less, the volume is high and around 65%," Prasad said.