Merchant Discount Rate also referred to as the Transaction Discount Rate or TDR is the rate charged to a merchant for the payment processing of debit and credit card transactions. Generally, merchants set up the service and thereafter accept to agree or commit to the rate before allowing credit/debit cards payment. It is expressed in percentage of the transaction amount.
For instance, the MDR includes bank charges, which a bank charges customers and merchants for allowing payments to be made digitally. Similarly, MDR also includes the processing charges that a payments aggregator has to pay to online or mobile wallets or indeed to banks for their service.
It compensates the following participants:-
- POS terminal provider
- Payment network provider
- Fees charged to the consumer
It may or may not include miscellaneous fees such as cross-border fees, interchange fees, zero-limit fees etc.
NEED OF MERCHANT DISCOUNT RATE
Since there are Payment Gateways and Payment Aggregators involved in online transactions. MDR charges serves as a profit for them. Absence of such MDR charges will kill the industry and will leave no incentive to expand the universe.
HOW MDR WORKS ?
The MDR rates are fixed by the Reserve Bank of India and are dependent on the level of business transactions being processed, the types of cards (debit or credit) used by customers, and the value of the average transaction (also known as average tickets or average sales). Typically, the key component of the discount rate is the interchange fees.
Merchants usually pay 1% to 3% fee for the processing of payments for every transaction.
PRESENT MDR CHARGES
- MDR charges for transactions made through RuPay (Debit Card) and UPI platforms= 0% (Nil) w.e.f January 01, 2020
- MDR charges for payments made to establishments having turnover in excess of Rs 50 crore= 0% (Nil)
- MDR Charges on Debit Card (for transactions less than Rs 2000)= 0% (Nil)
- MDR Charges on Debit Card (for transactions more than Rs 2000) = 0.60% for transaction above Rs. 2,000 with a maximum cap of Rs 150 per transaction.
- MDR Charges on card-based QR transactions (Bharat QR) = 0.50% with a maximum cap of Rs 150 per transaction.
***From 1st January, 2020, businesses with an annual turnover of more than Rs. 50 crore will have to offer low cost digital payment options to customers and Merchant Discount Rate (MDR) will not be levied on either customers or merchants.
Thus, in simple words MDR is the rate or fee being charged on the merchant by the service providers at the time the customer makes the payment using his/her card on the PoS machine.