Merchant Discount Rate (MDR)

The Merchant Discount Rate (MDR) is the all-in percentage fee a merchant pays on each card payment transaction, encompassing the Interchange Fee, Scheme Fee and Assessment Fee charged by the card network, and the payment processor's and acquirer's own margin. It is typically expressed as a percentage of the transaction value, sometimes with an additional flat per-transaction component.

The MDR is the number that appears on a merchant's processing agreement as their headline cost of card acceptance. Its components are: interchange (the largest component, flowing to the issuing bank), card network assessments and scheme fees (flowing to Visa, Mastercard, or other network), and the acquirer or processor margin (flowing to the merchant's payment service provider). The MDR encompasses all three layers, what a merchant actually pays is the sum of all these costs, regardless of how they are packaged or labeled in the processing agreement.

MDR varies by transaction type and card type. In markets where Interchange-Plus Pricing is standard, the merchant can see each component separately. In markets or arrangements where Blended Rate Pricing is used, the MDR is presented as a single bundled figure. In some markets, particularly in Asia, Latin America, and some European countries, MDR is the standard market-level concept used in discussions between merchants and their payment providers, encompassing all payment acceptance costs under one figure.

For merchants evaluating their payment costs, comparing MDR across providers requires careful decomposition: two providers quoting the same headline MDR may have different underlying cost structures, different pass-through assumptions, and different fee schedules for specific card types. Understanding what is included in a quoted MDR is the first step in any cost comparison.