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In order to encourage debit card transactions, the Reserve Bank of India has announced a cap on the Merchant Discount Rate (MDR). The service will be effective from July 1, the MDR for transactions undertaken with debit cards must not exceed 0.75 per cent of the transaction amount for value up to Rs 2,000 and 1 per cent for that above Rs 2,000. MDR is a processing fee charged by a bank from a merchant to provide debit and credit card services.

The cap on MDR would encourage all merchants to deploy card acceptance infrastructure and also facilitate acceptance of small value transactions. A lower MDR, with the expected increase in transaction volume on account of network effects, would result in a reasonable ROI for acquiring banks.

Till now, the MDR for debit and credit cards was the same in India. Given the different nature of the two products, there is no rationale for having a similar MDR for debit and credit cards, the RBI stated in a release.

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