SBP Eliminates the 1.5% Fee for Debit and Credit Card Transactions

The State Bank of Pakistan (SBP) has made a daring move to encourage the use of digital banking throughout the nation.

The mandatory minimum fee of 1.5% that banks were required by law to charge merchants for debit and credit card transactions has been eliminated by the central bank. According to a notification issued on Friday, financial institutions may now charge less than 1.5%.

The SBP has kept the fee’s upper limit at 2.5%. Additionally, the SBP has mandated that all online merchants and payment recipients in Pakistan begin accepting card payments no later than June 30, 2023. The country’s cash-based transactions will decline as a result of this action, which will promote digital transactions.

Earlier, gas stations had stopped accepting debit and credit card payments in protest at the 1.5% fee. In order to protect their profit margins, oil marketing companies (OMCs) like Pakistan State Oil (PSO) and dealers of petroleum products also asked the relevant authorities for permission before charging cardholders the additional amount. However, the request was denied by the authorities.

According to the SBP notification, the lower range (minimum fee) of merchant discount rate (MDR) has been abolished to facilitate the acceptance of card-based payments. The SBP has also ordered all online payment/e-commerce processors doing business in Pakistan to enable domestic payment scheme (DPS) card acceptance for card-not-present (CNP) transactions on their respective payment gateways by June 30, 2023.

The SBP has also established maximum limits for the interchange reimbursement fee (IRF) charged for cards issued in Pakistan used on domestic POS (point of sale) terminals, which are 0.2% for debit and prepaid card payments and 0.7% for credit card payments. IRF is included in MDR, which has a maximum 2.5% fee and is not an additional cost.

Sohail Malik, a well-known digital banker, said that the elimination of the minimum fee is a sound step towards promoting digital banking.He emphasised that because they were responsible for paying the transaction fee rather than the owners of debit and credit cards, businesses had chosen to accept cash payments over cards and online transactions.

The SBP’s decision to eliminate the minimum fee is an important step in Pakistan’s push to ease the burden on retailers and encourage digital transactions. The action is a part of the State Bank’s plan to use more digital cards, which will lessen the use of cash and make it easier to document the economy.

The SBP wants to encourage more cardholders to use their cards for transactions so that fewer people rely on cash-based transactions. There are about 45 million debit and credit cards in the nation.

The SBP reported in the Payment System Review for the quarter ended March 31, 2022, that there were 96,975 POS machines, while the number of payment cards decreased slightly from 48.7 million to 47.2 million compared to the prior quarter.

The number of POS transactions processed during the three months ending in March 2022 totaled 38.3 million, with a value of Rs 189.7 billion. This represents a quarterly growth of 6.5% in value and 21.9% in volume.

Digitally processed e-commerce transactions totaled 9.1 million, with a value growth of 1.3% over the previous quarter but a volume decline of 32.7%, totaling Rs 27 billion. The total amount of ATM transactions, which totaled Rs2,437 billion, increased by 1.1% in number when compared to the prior quarter.

Written by Imad Khan

Imad Khan has the skills and experience to deliver top-notch content that informs, engages, and inspires. He oftens explores nature in his free time.