Which one of the following best describes the term "Merchant Discount Rate" sometimes seen in news?
Answer & explanation
Answer: (c) The charge to a merchant by a bank for accepting payments from his customers through the bank's debit cards.
The Merchant Discount Rate (MDR) is a fee that flows from the merchant to the bank, charged as a percentage of each card payment the merchant accepts. It is not an incentive or a cashback; the RBI caps it and bars merchants from passing it on to customers.
- ✓ (c) The RBI's December 2017 circular speaks of the MDR 'levied on the merchant' and caps it as a percentage of the transaction value.
- ✗ (a) The money moves the other way: the merchant pays the bank, the bank does not pay the merchant.
- ✗ (b) That describes a cashback to cardholders; the RBI in fact tells banks to ensure merchants do not pass MDR charges on to customers.
Remember · MDR = fee a merchant pays its bank on each card/QR payment, a % of transaction value; RBI caps it (debit-card framework of 6 December 2017) and it cannot be passed to customers.
Sources
- Rationalisation of Merchant Discount Rate (MDR) for Debit Card Transactions, RBI circular dated 6 December 2017 ↗ “Further, banks shall ensure that the MDR levied on the merchant shall not exceed the cap rates as prescribed above, irrespective of the entity which is deploying the card acceptance infrastructure at the merchant location. … Banks are also advised to ensure that merchants on-boarded by them do not pass on MDR charges to customers while accepting payments through debit cards.”
Question and answer: UPSC's official GS Paper I (2018, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). ·