Merchant Discount Rate (MDR)

About Merchant Discount Rate (MDR)

• Merchant Discount Rate (MDR) is the fee charged to merchants for accepting digital payments.
• Purpose: It covers costs incurred by banks, payment processors, payment gateways, and other payment infrastructure participants.
• Mechanism:
  • Payment Process: When a customer makes a digital payment, the merchant usually receives the transaction amount after MDR is deducted.
  • Example: On a ₹10,000 transaction with a 2% MDR, ₹200 is deducted and the merchant receives ₹9,800.
• Major Components: MDR consists of different fees paid to the entities involved in processing and completing a digital payment.
  • Payment Processor Fee: Payment processors charge fees for handling transactions between merchants and banks.
  • Interchange Fee: Card issuers charge fees for processing transactions.
  • Assessment Fee: Card networks charge fees for using their payment processing services.
  • Markup Fee: This fee is divided among entities involved in the transaction.
• Key Features:
  • Percentage-based: MDR is generally calculated as a percentage of the transaction value.
  • Variable: MDR is not a single fixed rate and can differ across payment modes, providers and applicable arrangements.
  • Additional Charges: Payment processors may charge additional fees for fraud prevention, chargeback handling and customer support.
  • Settlement: MDR charges are automatically deducted from the merchant’s account when the transaction batch is settled.
  • Business Cost: Merchants must consider MDR as part of their business costs while setting their prices.
  • UPI Position:UPI and RuPay debit card transactions were exempted from MDR under the government’s zero-MDR framework in January 2020.