GS PrelimsEconomyDigital Payments2018

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.

Correct Answer: Option C

Explanation

1. The question asks for the best description of the term "Merchant Discount Rate" (MDR). 2. MDR is a fee levied on a merchant by their acquiring bank for processing debit and credit card transactions. 3. Option (A) describes an incentive to the merchant, which is the opposite of MDR. 4. Option (B) describes cashback or rewards given to customers, not a charge to the merchant. 5. Option (C) accurately describes MDR as the charge to a merchant by a bank for accepting payments from his customers through the bank's debit cards (and credit cards). This fee covers the costs associated with processing the transaction, including network fees and issuer fees. 6. Option (D) describes a government incentive, which is different from the MDR charged by banks.

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