Question 72 from UPSC CSE 2018 - Current Affairs

Question

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

IASCODEX · Accepted Answer

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

Strategy: Focus on the payment flow: Merchant Discount Rate (MDR) is a charge paid by merchants to banks for card-based transactions. Options involving incentives or payments to merchants or customers should be dismissed. The financial news context reinforces MDR as a merchant's cost for digital payment acceptance.

Key Info: The Merchant Discount Rate (MDR) is a fee charged to merchants by acquiring banks for facilitating debit or credit card payments.

### MDR Components
*   MDR covers costs for acquiring banks, issuing banks, and card networks (e.g., Visa, Mastercard, RuPay).
*   This rate is expressed as a percentage of each transaction and is deducted from the amount credited to the merchant's account.
*   MDR compensates for payment infrastructure, risk management, and settlement services.

### Regulation & Policy
*   Regulatory authorities, such as the Reserve Bank of India, cap or regulate MDR to encourage digital transactions.
*   Small merchants or government services may receive exemptions or reduced MDR to promote financial inclusion.

### Key Distinction
MDR is strictly a charge deducted from merchant settlements for card transaction processing. It does not refer to payments made to customers, nor to incentives provided by banks or government for adopting point-of-sale (PoS) or digital payments.

IASCODEX · Answer

Option A: The incentive given by a bank to a merchant for accepting payments through debit cards pertaining to that bank.

IASCODEX · Answer

Option B: The amount paid back by banks to their customers when they use debit cards for financial transactions for purchasing goods or services.

IASCODEX · Answer

Option 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.