MDR stands for Merchant Discount Rate in banking. It is a fee that banks or payment service providers charge merchants for processing digital payment transactions such as debit card, credit card, or UPI payments. MDR plays an important role in the digital payment ecosystem and affects businesses, banks, and customers.
What Is MDR in Banking?
The Merchant Discount Rate is the percentage fee deducted by the bank from the payment amount when a customer makes a digital transaction at a merchant’s store. For example, if a customer pays ₹1,000 using a card and the MDR is 2%, the merchant receives ₹980 while ₹20 goes towards bank charges, payment gateway fees, and network provider fees.
MDR applies to various types of transactions like POS machine payments, online payments, and QR code transactions.
How MDR Works?
When a transaction happens, different entities are involved—issuing bank, acquiring bank, payment gateway, and card network (Visa, RuPay, Mastercard). Each of these players receives a share of the MDR fee.
This fee helps banks and service providers maintain secure payment systems, prevent fraud, and enable smooth digital transactions.
Factors That Affect MDR
1. Type of Payment Method
MDR varies for debit cards, credit cards, UPI, net banking, and wallet payments.
2. Type of Merchant
Small merchants may get lower MDR rates, while online businesses may be charged higher rates.
3. Transaction Volume
Merchants with high transaction volumes often receive lower MDR charges.
Why Is MDR Important?
MDR encourages banks to invest in digital infrastructure, supports secure payments, and helps merchants offer multiple payment options. It is also essential for maintaining a smooth digital payment ecosystem.
Conclusion
The Merchant Discount Rate (MDR) is a small but crucial part of digital banking. It ensures secure payment processing and supports the digital economy by enabling card and online transactions. Understanding MDR helps merchants plan their payment strategies and manage business costs effectively.