Which one of the following best describes the term “Merchant Discount Rate” sometimes seen in news ?
- (a) The incentive given by a bank to a merchant for accepting payments through debit cards pertaining to that bank.
- (b) The amount paid back by banks to their customers when they use debit cards for financial transactions for purchasing goods or services.
- (c) The charge to a merchant by a bank for accepting payments from his customers through the bank’s debit cards. ✓ UPSC's answer
- (d) The incentive given by the Government to merchants for promoting digital payments by their customers through Point of Sale (PoS) machines and debit cards.
Why the answer is (c)
• The Merchant Discount Rate (MDR) is the fee a merchant pays to the bank/card network for accepting payment through debit or credit cards, usually a percentage of the transaction — option (c).
• It is shared among the acquiring bank, the issuing bank and the network; the RBI caps MDR on debit cards, and the Government has made MDR zero on RuPay and UPI transactions since 2020.
• It is not a bank incentive (a), a cashback to customers (b) or a government incentive (d).
• Hence option (c).
Why the other options are wrong
- (a) The incentive given by a bank to a merchant for accepting payments through debit cards…
- MDR is a charge on the merchant, not an incentive.
- (b) The amount paid back by banks to their customers when they use debit cards for financial…
- MDR is not a customer cashback.
- (d) The incentive given by the Government to merchants for promoting digital payments by…
- MDR is not a government incentive.
Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2018, held on 3 June 2018. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.