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Home Page > Finance > Credit > Debit card use can be popularised by cutting MDR
Debit card use can be popularised by cutting MDR
Posted: Sep 21, 2010 |Comments: 0
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Use of debit cards can be popularised in the country if Reserve Bank of India (RBI) accepts a proposal that banks cut fees for debit card payments by bringing down merchant discount rate (MDR) or card commissions, a study by Indian Institute of Technology, Mumbai (IIT-B), said here.
The study presents key issues relating to India's retail payment system and focuses on how the country can transit from the existing cash based retail payments to cashless payments.
"Transition from the existing cash based retail payments to cashless payments can occur by promoting payment through debit cards", Professor Ashish Das and Rakhi Agarwal of the Department of Mathematics, said in a technical report "Cashless Payment System in India- A Roadmap", which has been submitted to the RBI.
"This will require rationalising costs associated with the use of debit cards, making them more secure and conducting focused financial education programs for increasing public awareness," Das said.
This transition would lead to saving currency management costs and generate valuable information on spending behaviour of the masses, he said.
With an eye to boost an efficient cashless payment system for the country, the report has suggested directions for optimising usage and rationalising pricing patterns.
"Though card based payment systems have been in vogue for several years, its use and popularity is still limited," the study said.
There are 190 lakh credit and 1,900 lakh debit cards in the system, but annually there are just 11 transactions per credit card and one transaction per debit card, he said.
This study carried out a review of the roles performed by various players of the system to locate reasons for this subdued transition to cashless payments, Das said, adding that it arrived at a structured and implementable road map to move towards a cashless retail payment system in India.
Director,II-B, Prof Devang Khakhar said,"The work of Professor Ashish Das, Professor of Statistics, on benefits of cashless retail payment exemplifies the important role of Statistics for policy. I am sure that the Government of India and the Reserve Bank will find his analysis valuable in their efforts for bringing down the currency management costs."
Das said the report gives an in-depth understanding of the concept and working of the card based payment system.
"It gives a systematic analysis of the payment system for the country's enormous retail sector," Das said adding that the study also conducted a survey among merchants apart from an extensive review of international practices and independent interactions with major market players.
Das said Major recommendations of the study are; encourage usage of no-frill debit cards and bring in awareness on debit card usage among merchants and cardholders through focused financial education campaigns, MDR on all no-frill debit cards be fixed at 0.2 per cent per transaction with a cap at Rs 20, a no-surcharge rule can be applied strictly to no-frill debit cards, make all debit card transactions at POS PIN-based, cash withdrawal at POS can be clubbed with purchase and merchants to be given freedom to surcharge on credit cards.
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