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Budget 2019: OMCs may save Rs 500 crore a year on withdrawal of merchant discount rate

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Oil marketing companies will save Rs 400-500 crore annually every year with the proposed removal of merchant discount rate (MDR), two company executives said.

MDR is a card transaction fee paid by the merchant — in this case, the fuel company—and shared by banks which put up the swipe machine and issue the card, and payment networks like Visa and Mastercard.

MDR is not passed on to customers.

In her maiden Budget speech, Finance Minister Nirmala Sitharaman said that no MDR shall be imposed on merchants who allow their customers to make payments through low-cost digital payment modes.

“There are low-cost digital modes of payment such as BHIM UPI, UPI-QR Code, Aadhaar Pay, certain debit cards, NEFT, and RTGS," she said.

The Finance Minister said the Reserve Bank of India (RBI) and banks will absorb these costs from the savings that will accrue to them on the account of handling less cash as people move to these digital modes of payment.

Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation, have been bearing MDR on behalf of their dealers for more than a year now.

“Withdrawal of MDR is a welcome move. This will result in a yearly savings of up to Rs 500 crore for the oil marketing companies," said a senior official from an OMC, one of the two people cited earlier on the condition of anonymity.

Surcharging and high MDR charges are two of the reasons impeding growth and sustenance of digital payments despite measures being taken to promote it, according to a study by the Indian Institute of Technology, Bombay, released in March.

Unauthorised surcharging has burdened the payment system users with huge additional costs, according to the study by Ashish Das, a professor of statistics.

It is estimated that the merchants were burdened with nearly Rs 10,000 crore towards credit card MDR fee in 2018 alone as against the overall cost of Rs 3,500 crore towards debit card MDR, even as in value terms, credit and debit card transactions are almost similar at Rs 5.7 lakh crore each in 2018. “We had been in discussions with the banks to reduce this financial burden, but to no avail. It’s a good move," said the second official mentioned above on the condition of anonymity.

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