MDR: FULL FORM: MERCHANT DISCOUNT RATE Flashcards
What is a Merchant Discount Rate (MDR)?
A fee charged to a merchant by their bank for each debit or credit card transaction.
Who shares the MDR fee?
Customer’s issuing bank
Merchant’s acquiring bank
Payment gateway provider
How can MDR impact merchants?
MDR can reduce profit margins for merchants.
High MDR might discourage merchants from using POS terminals, slowing down the growth of a digital economy.
What step has the Reserve Bank of India (RBI) taken to manage MDR?
The RBI put limits on MDR fees in 2017. This means the MDR must stay below a certain percentage of the transaction value.
What is the main difference between debit cards and credit cards?
Debit Cards: Linked directly to your bank account. Spending is limited to your available funds.
Credit Cards: Provide a line of credit extended by the issuer. You repay the amount spent later, often with interest.
What is UPI?
UPI (Unified Payments Interface) is a real-time payment system in India. It allows instant money transfers between bank accounts using a smartphone.
What is MDR?
MDR stands for Merchant Discount Rate. It’s the fee paid by a merchant to a bank or card company for processing debit or credit card transactions.
How does MDR differ for UPI, RUPAY debit cards, and credit cards?
UPI: 0% MDR
RUPAY Debit Card: 0% MDR
Credit Card: MDR varies, but is not zero.
Why does the Indian government offer subsidies related to MDR?
The Indian government subsidizes MDR losses on Rupay and UPI transactions to promote digital payments, especially in smaller towns and rural areas.
Why do banks often promote Mastercard and Visa cards over Rupay debit cards or UPI?
Banks earn revenue from the MDR fees on Mastercard and Visa transactions. With the MEITY subsidy in place to cover MDR losses on Rupay and UPI, banks now have less financial incentive to prioritize international cards.
What is Rupay?
Rupay is a domestic card payment scheme created in India by the National Payments Corporation of India (NPCI). It competes with international networks like Visa and Mastercard.
Why are international card companies like Mastercard and Visa concerned about India’s payment policies?
Mastercard and Visa feel that the lower MDRs and government subsidies for Rupay and UPI create an unfair advantage, hindering their business in the Indian market.
What role does MEITY play in India’s digital payment landscape, and what major announcement did they make in December 2021?
MEITY: The Ministry of Electronics and Information Technology (MEITY) is a government agency responsible for promoting digital infrastructure and e-governance in India.
December 2021 Announcement: MEITY announced a subsidy scheme to reimburse banks for MDR losses on Rupay debit card and UPI transactions. This subsidy aimed to encourage digital payments, especially in smaller towns and rural areas.
