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

1. A. The incentive given by a bank to a merchant for accepting payments through debit cards pertaining to that bank.
2. B. The amount paid back by banks to their customers when they use debit cards for financial transactions for purchaing goods or services.
3. C. The charge to a merchant by a bank for accepting payments from his customers through the bank’s debit cards.
4. 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

Explanation

Merchant Discount Rate is a fee charged from a merchant by a bank for accepting payments from customers through credit and debit cards in their establishments. It 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 transaction amount.