All about MDR Charges & other Digital Payments related Fees

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Every now and then we stumble upon the term Merchant Discount Rate or MDR charges but do we actually know what it means, who gets the share and most importantly, how is it calculated?

MDR is the percentage charged to a merchant as processing fee for payment services opted by him. Charged by the payment service provider, Merchant discount rate, is levied for using the payment infrastructure i.e., when a merchant accepts payment from their customers through online payment modes or debit and credit cards in exchange of goods and services. The MDR percentage is defined before the merchant agrees to the setting up and utilisation of the services and henceforth, the charges are applicable on the transactions made. 

Comprehending the Merchant Discount Rate

Ideally, MDR is cumulative of all the charges and taxes that digital or electronic payment entails. Breaking it down, Merchant discount rate consists of bank fees charged to customers and vendors for making payments digitally, transaction processing fee levied on the payment aggregator by the virtual or mobile platforms or banks. This fee typically varies between 1 per cent to 3 per cent of the overall transaction amount. 

Your typical MDR charge may also comprise of interchange fees, miscellaneous fees, gateway and point-of-sales fees and assessment fees. 

What is Switching Fee?

Levied as a processing fee on the card’s issuing bank, switching fee is nothing but the fee that the card-issuing institution like, Amex, Visa, MasterCard etc imposes and can be referred to as the routing transaction between the parties. RuPay cards, as per government mandate, are free of MDR charges as an initiative to boost the home-grown institution expanding digital payment. Apart from RuPay cards, UPI also doesn’t attract any MDR. 

What is Interchange Fee?

Interchange fees includes the amount collected by the issuing institution from the acquiring bank. Generally, it consists of a percentage of the total transaction amount and a fixed amount. Interchange fee is commanded by the customer’s bank from the merchant’s bank to process digital transactions. 

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What is Payment Service Provider or PSP Fee?

In order to accept payments digitally, you require a payment infrastructure which is provided to you by the payments service providers. In exchange of this service, they charge a nominal fee. This fee helps them enhance the payment interface and experience and allow them to provide you with better and more comprehensive service to accept digital payments. It may also be inclusive of set up and annual maintenance fee.

How MDR charge Divided

How does Merchant Discount Rate actually works?

MDR is traditionally calculated on the value of each transaction processed, where the rates are dependent on the volume of business transactions being processed, the type of debit or credit card or online payment  that your customer uses and the value of average transaction or sales. Usually, the key component of the MDR is the interchange fees. 

But to help you understand the MDR charges in a more painless way, let us look upon an example. 

MDR Charges Flow

Let’s say that a customer goes to a retail outlet or online website to purchase goods and chooses to pay through their credit or debit card or via online payment. In case of cards, the card is inserted in the POS or Card swipe machine at the merchant outlet and the transaction is processed successfully upon entering the PIN. Similarly, post entering banking information, the transaction will be successful in an online mode of payment. Now here’s the catch. When the merchant uses a digital platform to facilitate payment, it attracts a nominal charge which is payable to the payment service provider, referred to as Merchant Discount Rate. This charge is levied on the merchant for utilising the payment infrastructure to cultivate and process sales. 

Once the MDR charges are collected by the Payment service provider, they are then split among the bank which issued the card, the payment network i.e., Visa, MasterCard, RuPay etc, and the banks. 

Is MDR Charge really necessary? 

In order to sustain and nourish the continuity of payment infrastructure, payment processing fees are crucial which are responsible for encouraging global e-commerce. With payment gateways and aggregators being involved in online transactions, MDR charges serve as a profit opportunity for them. Eliminating MDR could potentially kill the industry, leaving no motivation to expand the payment universe. 

Being one of the top players of the payments industry, Atom provides the most competitive rates when it comes to MDR charges. Our customisable rates depends on the value and volume of transaction that your business process, leaving you a room full of opportunities to enhance your sales.

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