UPSC Prelims 2018 · Question 6 of 99
UPSC Prelims 2018 question on Merchant Discount Rate
- ExamUPSC CSE
- Year2018
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicBanking
- DifficultyMedium
- TypeDirect
Which one of the following best describes the term 'Merchant Discount Rate' sometimes seen in news?
Show answer
Answer: C. The charge to a merchant by a bank for accepting payments from his customers through the bank's debit cards.
Analysis
The Merchant Discount Rate is the fee a bank charges a merchant for accepting card payments from customers at the merchant's establishment. Expressed as a percentage of transaction value, it compensates the card issuing bank, the lender that installs the point of sale terminal, and the payment gateway such as Mastercard or Visa.
The closest distractor is (a), which inverts the direction of payment by describing an incentive given to the merchant. MDR is a charge borne by the merchant, not an incentive received. Option (a) would have been right only if MDR were a subsidy, and option (d) describes exactly that sort of government incentive, a separate instrument.
Statement by statement
Option (c) states the meaning correctly, so the answer is (c).
Source
The Hindu report on the RBI reducing merchant discount rates for debit cards.
How to crack it
The news hook was the RBI capping MDR to push digital payments, and the word discount is the trap, since nobody receives a discount. Settle who pays whom before parsing the wording: three options describe money flowing to the merchant or customer, only one flows from the merchant.