In order to encourage the widespread usage of digital payments post demonetisation, on 23 November, Economic Affairs Secretary Shaktikanta Das announced that no transaction charges will be levied on debit cards till 31 December.
All public sector banks and some private sector ones have agreed to waive the transaction cost for all payments made through debit cards, Das told reporters.
The move comes after the government reviewed the situation post demonetisation of 500 and 1,000 rupee notes and decided to encourage digital payments.
"Public sector banks and some of the private sector banks, and some of the service providers who provide switching services, have agreed to waive the service charges on the use of debit cards up to December 31, 2016," Das said.
As of now, Rupay debit cards have already waived the switching charges. Other debit cards which operate on international card network companies like Mastercard and Visa, currently charge transaction charges.
So far, customers bear the transaction cost commonly known as merchant discount rate (MDR) on payments made to the government.
"The MDR charges on use of debit cards, the charges being levied by the banks and the switching charges will stand completely waived. So, there will be no charge on use of debit cards.
"I take this opportunity to appreciate the gesture of public sector banks, and some of the private sector banks who have already agreed. And others are expected to agree and issue their own circulars," Das said.
He said the intention behind this decision is to ensure greater penetration of digital transactions into our economy and to ensure that more and more people migrate towards digital transactions.
The Reserve Bank in 2012 had capped the MDR for debit card transaction at 0.75% for transaction values up to Rs 2,000 and at 1% for transaction values above Rs 2,000. However, there is no RBI cap on MDR on credit card payments.
In order to move towards 'less-cash' society by developing a card acceptance infrastructure, the RBI had in March came out with a concept paper to encourage card transactions and sought public opinion.
As of October 2015, there were 61.5 crore debit card users and 2.3 crore credit card holders in the country.
The Task Force on promotion of payments through cards and digital means has flagged issues with respective government departments.