Here is Question No. 6 a part of our series on UPSC Prelims 2018
Q6. 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.
(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.
Answer: C
- MDR is a fee charged from a merchant by a bank 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 is expressed in percentage of the transaction amount. Merchant Discount Rate, alternatively referred to as the Transaction Discount Rate or TDR is expressed as a percentage of transaction amount and is shared in a preagreed ratio between the bank and the merchant.
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