Which 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.

Explanation

Option (c) is correct

• The “Merchant Discount Rate” MDR is the fee that a merchant has to pay to a bank for every transaction, which is split between the bank which has issued the card, the lender whose point-of-sale terminal is being used and payment gateways like MasterCard or Visa.

Answer: (c) The charge to a merchant by a bank for accepting payments from his customers through the bank’s debit cards; Difficulty Level: Medium