Question

UPSC Prelims 2018 Question:

Which one of the following best describes the term "Merchant Discount Rate" sometimes seen in news?

1. The incentive given by a bank to a merchant for accepting payments through debit cards pertaining to that bank.
2. The amount paid back by banks to their customers when they use debit cards for financial transactions for purchasing goods or services.
3. The charge to a merchant by a bank for accepting payments from his customers through the bank's debit cards.
4. The incentive given by the Government to merchants for promoting digital payments by their customers through Point of Sale (PoS) machines and debit cards.

Answer (Detailed Solution Below)

Option 3: The charge to a merchant by a bank for accepting payments from his customers through the bank's debit cards.

Detailed Solution

Explanation:

Merchant Discount Rate (MDR) is a fee charged by a bank from a merchant for accepting payments from customers through credit and debit cards in their establishments.
MDR compensates the card issuing bank, the lender which puts the PoS terminal and payment gateways such as Mastercard or Visa for their services.
MDR charges are usually shared in pre-agreed proportion between the bank and a merchant and are expressed in percentage of the transaction amount.

Therefore, option (3) is the correct answer.

Subject: Economics | Money and Banking

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