Oil marketing companies to bear entire Merchant Discount Rate (MDR) levy

Public sector (PSU) oil marketing companies (OMC) will bear the entire Merchant Discount Rate (MDR) levy on credit/debit card transactions according to officials aware of the government decision. While the government cannot mandate private OMCs to follow course, it expects that they too will implement the same to protect market share.

The merchant discount rate is an interchange fee paid to the bank that issues the credit or debit card used in each transaction. 

According to the All India Petroleum Dealers’ Association (AIPDA), banks charged 1 per cent on all credit card transactions and between 0.25 per cent and 1 per cent on debit card transactions at fuel outlets.

The whole controversy emerged when AIPDA protested against the levy of a merchant discount rate by the banks on credit/debit card transactions post-demonetisation on November 08,2016. AIPDA said banks decided to levy this charge on dealers effective January 09,2017

The fuel retailers then immediately decided not to accept any credit or debit cards for fuel purchase.

Even though the government decided to incentivise plastic transactions through a 0.75 per cent discount on fuel purchase, a corresponding MDR levy on them strained margins for dealers. As the sales from cash started shifting to plastic money, the dealers started feeling the pressure on their margins because of the additional levy. The transition to digital transaction has been almost immediate. Sales through this mode increased to almost 25 per cent from 10 per cent of the total sales earlier.

Oil Minister Dharmendra Pradhan had said on January 12,2017  a framework to levy a merchant discount rate will be in place by today. He said, “Consumers and dealers will not bear any burden of MDR on debit card transactions at oil marketing companies’ retail outlets. A proper mechanism will be put in place by January 16, and the rate will be based on the negotiations between OMCs and banks,”