The majority of fuel stations under Oil Market Companies (OMCs) have reportedly stopped accepting payment via credit/debit cards for petrol and diesel because of the high (1.5 percent) merchant discount rate (MDR) charged by commercial banks.
An OMC official told a national daily that banks are pocketing Rs. 3.45 in MDR from the margin of Rs. 3.68 on one liter of petrol and diesel when a consumer makes a purchase via credit or debit cards, with leeway to squeeze the OMC margin to just Rs. 0.23 per liter and put the OMCs’ financial health at risk.
The annual sale numbers of motor gasoline and diesel show that the country has used up 20 billion liters, of which 400 million liters were sold through credit and debit cards, and if the average price of petrol and diesel was assumed to be Rs. 230 per liter, the value of bank card sales came to Rs. 92 billion per year.
Banks charge 1.5 percent MDR on one liter and earn Rs. 1.38 billion in MDR, not from consumers but from OMC margins. The OMCs’ annual profit margin on bank card sales is Rs. 1.472 billion, of which Rs. 1.38 billion goes to banks, leaving a net margin of Rs. 92 million. This is why OMCs cannot continue to sell fuel via credit or debit cards.
The latter demand that the MDR should be reduced from 1.5 percent to 0.3 percent. The oil industry recognizes the importance of improving Pakistan’s digital payment infrastructure but the current level of MDR charged on fuel transactions is unsustainable for the industry.
It is worth mentioning that on 22 August 2022, the oil companies’ advisory council (OCAC) wrote a letter to the State Bank of Pakistan (SBP) on behalf of the OMCs to raise the issue of banks charging higher MDR.
In the letter, the OCAC built a case for the OMCs and sought a review of the MDR rate of 1.5 percent on fuel purchases made with credit or debit cards, contending that while the MDR varies across the industry, banks charge an average of 1.5 percent at petrol pumps across the country, and the cost is borne by the OMCs and their dealers (petrol pump owners and operators).
Given the high turnover of fuel, and to assist customers while not burdening the OMCs and dealers, the OCAC proposed to the SBP governor that MDR on fuel purchased be capped at 0.3 percent.