Q. What is Merchant Discount Rate?- Published on 10 Jan 17
a. Rate charged by a merchant to the customers
b. The rate of discount given by merchant to customers at their discretion
c. Rate charged to a merchant by the bank
d. Discounted interest rates for loans given by banks to merchants
ANSWER: Rate charged to a merchant by the bank
Merchant Discount Rate (MDR) is the charge (rate) charged by the bank to the merchants for letting the merchants collect payments through swiping of credit and debit cards.
The merchant discount rate is expressed in percentage of the transaction amount.
The merchant needs to open an account with the bank.
The bank then provides the swipe machine. On swiping the cards, the money gets deposited in the account.
The merchant must agree to the rate before setting up his/her account.
RBI wants to encourage cashless transactions and so it as set upper limits for the MDR.
MDR for debit card transaction has been capped at 0.75% for transaction values up to Rs.2000 and at 1% for transaction values above Rs.2000.