Merchant Discount Rate Definition
Question
Which one of the following best describes the term "Merchant Discount Rate" sometimes seen in news?
Options
The incentive given by a bank to a merchant for accepting payments through debit cards pertaining to that bank.
The amount paid back by banks to their customers when they use debit cards for financial transactions for purchasing goods or services.
The charge to a merchant by a bank for accepting payments from his customers through the bank's debit cards.
The incentive given by the Government to merchants for promoting digital payments by their customers through Point of Sale (PoS) machines and debit cards.
Explanation
The Merchant Discount Rate (MDR) is the fee or charge that a bank or payment processor levies on a merchant (seller) for accepting card payments (debit/credit cards) from customers. It is a percentage of the transaction value that the merchant must pay to the acquiring bank. Option (a) is incorrect as MDR is a charge, not an incentive. Option (b) is incorrect as this refers to cashback, which is paid to customers, not merchants. Option (d) is incorrect as MDR is a banking industry fee, not a government incentive scheme. Option (c) correctly defines MDR as the charge imposed by banks on merchants for card payment acceptance, which became highly relevant in India during discussions on promoting digital payments and reducing MDR to encourage digital transactions. > MDR = Merchant Discount Rate = Fee charged by banks to merchants for processing card payments; not an incentive but a transaction cost. Answer: (c).
Question details
Year
2018
Paper
GS Paper 1
Question
Q6
Subject
Economy
Sub-topic
Digital Payments and Financial Terminology
Type
Factual single
Difficulty
Easy
Nature
Current-affairs-linked
Source hint
RBI Guidelines on Payment Systems and Digital Transactions
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