SBP abolishes MDR on POS transactions

KARACHI: The State Bank of Pakistan (SBP) has eliminated the merchant discount rate (MDR) of 1.5 percent for point of sale (credit and debit card) transactions and revised the interchange reimbursement fee (IRF) for cards issued in Pakistan.

This move attempts to promote digital payments in the country.

In a circular issued on Friday, the State Bank of Pakistan stated that the IRF for cards issued in

Pakistan and used at the domestic point of sale (POS) terminals will not be higher than 0.2 to 0.7 percent.

“For debit and prepaid cards – not exceeding 0.2 percent, and for credit cards – not exceeding 0.7 percent,” it said.

The State Bank of Pakistan capped IRF at 0.5 percent in 2020.

According to the 2020 circular’s provision on improving Pakistan’s payment card acceptance infrastructure, the lower range of MDR ie 1.5 percent is abolished.

The MDR for POS acquiring in Pakistan used to be between 1.5 percent and 2.5 percent for both new and current merchants.

“All e-commerce/online payment acquirers operating in Pakistan shall enable acceptance of Domestic Payment Scheme (DPS) card for card-not-present (CNP) transactions on their respective payment gateways by June 30, 2023,” the SBP said.

According to analysts, the SBP’s decision to remove the MDR floor from POS transactions will benefit retailers because their share of the discount will decrease.

This move would make fintech issuers and acquirers less competitive, which is bad for the fintech industry.

Over the past few years, the nation’s digital payment infrastructure has grown significantly, particularly in regards to the number of debit cards that banks are issuing to their customers.

The POS infrastructure has expanded over the past few years, although this growth has generally been limited to high-end retailers in major cities.

High IRF and lower than necessary merchant discount rates to sign up high value merchants, and banks’ lack of interest in providing low cost domestic payment cards to their customers are a few of the major issues the POS acquiring sector in Pakistan is currently dealing with.