State Bank of Pakistan (SBP) has set the Merchant Discount Rate (MDR) for the transactions through Point of Sale (POS) within a range of 1.5% to 2.5% for retailers and service providers aimed at promoting the use of debit and credit cards throughout the country as part of the digitization of the financial system under National Payment System Strategy (NPSS).
MDR is a fee charged from a merchant by a bank for accepting payments from customers through credit and debit cards.
During the past few years, there has been considerable growth in the digital payment infrastructure of the country, especially in the number of debit cards being issued by the banks to their customers. Although the Point of Sale (POS) infrastructure has also grown during the past few years, its growth has largely remained restricted to high-value merchants in big cities.
Some key challenges being faced by the POS acquiring industry in Pakistan include high Interchange Reimbursement Fee (IRF), low cost of Merchant Discount Rate (MDR) to onboard high-value merchants and banks not interested in offering low-cost domestic payment cards to their customers.
There are over 55,000 POS across the country on the outlets and service centers for the purpose of transactions against the purchase of goods and services. The number of credit and debit cards are 1.6 million and 24 million respectively.
The central bank announced an exemption of MDR for various sectors including education, payment of tax, duties, penalties to courts, utility bills, and payment on the purchase of fuel including petrol, CNG, LPC and etc.
The central bank has also fixed the Interchange Reimbursement Fee (IRF) for debit and prepaid cards issued in Pakistan used on domestic POS terminals at 0.5%. An interchange reimbursement fee is a fee paid by banks an acquirer (a financial institution that processes card transactions on behalf of a merchant) to an issuer (a financial institution that issues cards to cardholders).
Card issuers shall offer SBP approved Domestic Payment Scheme (DPS) Card as the default card at the time of issuance or renewal of debit cards. Accordingly, card requesting customers shall be offered the following options in order of priority: Either an exclusive DPS card or a DPS card co-badged with an International Payment Scheme (IPS).
The new charges MDR and IRF shall come into effect from April 01, 2020.