MDR
Merchant Discount Rate
MDR (Merchant Discount Rate) is the fee that an acquirer or payment service provider deducts from the merchant on each card or other payment method transaction.
What is MDR (Merchant Discount Rate)?
MDR is the percentage of the transaction amount that the receiving party keeps for accepting and processing a payment. It covers the interchange fee, card scheme fees, and the margin of the acquirer or PSP. The rate is fixed in the merchant agreement and can be a single flat rate for all transactions or differentiated by card type, country, MCC, and risk level.
## What the rate consists of
Interchange is set by the issuing bank and depends on the card type and acceptance channel. Scheme fees are set by the card networks. The margin is the income of the acquirer or PSP. In a single blended rate, the first two components are usually transparent, while the margin may be hidden. To see the structure, merchants request an interchange-plus model or a breakdown by line item.
## Where it applies and what it affects
In high-risk segments the rate is usually higher because of chargeback risk and reserve requirements. MDR directly affects offer margins and unit economics. The final income is also changed by fixed per-transaction fees, chargeback penalties, holds, and payout delays, which are not always reflected in the report as MDR.
## Common mistakes
Comparing offers only by percentage without accounting for fixed fees, refunds, and minimum volume. Calculating the rate from the application instead of actual reports. Overlooking that the rate can be revised if the MCC or geography changes.
FAQ
How does MDR differ from a PSP fee?
MDR is the general name for the rate that the receiving party keeps. A PSP fee is part or all of that rate, depending on the model: a PSP usually adds its own margin on top of interchange and scheme fees.
Who sets the MDR?
The acquirer or PSP sets it when signing the merchant agreement, taking into account risk, vertical, and volumes. Interchange and scheme fees are set by issuers and card networks and do not depend on the merchant agreement.
Can MDR be reduced?
Sometimes, for example when volume grows, chargeback history is stable, or the merchant moves to an interchange-plus model. In high-risk segments reductions are rare and often come with higher reserves.