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Lower merchant discount rate to benefit customers
Bank Indonesia (BI) is determined to speed up the implementation of a newly introduced interconnected payment network as a way to reduce costs incurred in electronic payments and promote non-cash transactions, which are seen as more efficient than cash-based ones
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ank Indonesia (BI) is determined to speed up the implementation of a newly introduced interconnected payment network as a way to reduce costs incurred in electronic payments and promote non-cash transactions, which are seen as more efficient than cash-based ones.
Through the new network, dubbed the National Payment Gateway (NPG), BI has set a lower merchant discount rate (MDR), the rate charged by a bank to a merchant for providing debit or credit card payment services using electronic data capture (EDC) machines.
Some merchants often pass on those costs to customers although this is unacceptable according to BI regulations.
The central bank set an MDR of 1 percent for “off us” transactions, when the bank that issues the card is not the owner of the ATM or EDC machine used by the cardholder.
The existing average MDR off-us fee ranges from 1.6 percent to 3 percent.
“We hope that a lower [off-us] MDR will make transactions cheaper for people,” BI senior deputy governor Mirza Adityasawara said recently.
As for “on us” transactions, when the bank that issues the card also owns the ATM or EDC machine, BI has set a rate of 0.15 percent, which is lower than the regular range of between 0.5 percent and 0.7 percent, although some banks waive all such charges.
Maryono, chairman of the Association of State-Owned Banks (Himbara), said his group was ready to implement the NPG despite the fear of declining fee-based income from electronic transactions as a result of lower MDR fees.
He said transactions using debit cards would rise significantly when MDR fees were lowered, boosting banks’ income.
Bank Central Asia (BCA) director Santoso Liem said retailers should not be worried about the MDR charged by banks for on-us transactions as they were fairly low.
“Let’s say a merchant books sales of Rp 10 million [US$738] a day, they will only need to pay Rp 15,000 when the MDR fee is 0.15 percent,” he said.
Santoso said the MDR fee of Rp 15,000 charged to merchants could be similar to, or even much lower than, the cost of handling cash transactions, such as when they deposit their daily revenues in the bank.
Banks will be able to slash those transaction costs by the help of a shared infrastructure within the newly launched interconnected payment network. The cost of the interbank network has contributed to overall expenses leading to higher lending rates in Indonesia compared with its peers in Southeast Asia.
In the first phase, BI will only regulate the MDR in ATM or debit card transactions before turning to credit cards.
“The roadmap [for regulation on the MDR incurred in credit-card transactions] is not ready yet because the system is entirely different,” said Eni V. Panggabean, BI executive director of payment system policy and supervision.
BI also expects that the new shared payment network will help people become more accustomed to non-cash transactions as a major part of the population in Southeast Asia’s largest economy still prefers cash-based transactions, which accounted for 86 percent of transactions in 2015.
Only 8 percent of the country’s population of 250 million were debit-card holders in 2015, while credit-card holders amounted to only 1 percent, according to BI data.
“This is why it’s very important to continue pushing non-cash payments as they can reduce the ‘shadow economy,’ mitigate illegal activities and modernize the financial infrastructure,” Eni said, the shadow economy refers to illicit economic activities or transactions.
