Merchant Discount Rate (MDR) is a fee charged to merchants by banks or payment processors for accepting digital payment transactions. This rate is typically a percentage of the transaction amount.
How MDR Works:
- When customers pay via cards or digital wallets, the payment processor deducts the MDR before transferring the remaining amount to the merchant
- The MDR is split among the bank issuing the card, the bank receiving the payment, and the payment network (like Visa, Mastercard, Rupay or UPI)
Where MDR is Applicable:
- Credit and debit card transactions
- UPI payments beyond certain free limits
- Online payment gateways
What Impact does MDR have on Small Businesses:
- Accepting digital payments improves customer convenience, increases sales opportunities, and reduces cash handling risks
- Despite the positive, MDR component on digital payment can reduce the profit margins, especially for small businesses operating on low margins (especially Kirana/Retail Stores, etc.)
Steps Taken by the Indian Government regarding MDR:
- Subsidy: The government has subsidized MDR for small transactions (up to ₹2,000) to promote digital payments (Link)
- MDR Cap: Capping MDR rates to protect small businesses from excessive charges
- Digital Initiatives: Promotion of zero MDR for UPI and RuPay card transactions to encourage adoption
By understanding and leveraging MDR, small businesses and entrepreneurs can enhance their customer base while managing costs efficiently.
Hope you find this information on MDR helpful.
You can read other helpful articles:
- Understanding Digital Payments in India
- What is ‘Jan Dhan-Aadhar-Mobile’ (JAM) Approach used in India?
- Goods and Services Tax (GST) Registration – Should you apply or not?
- One Person Company (OPC) vs. Sole Proprietorship
- What is an E-Voucher?
Follow my blog for more content on Investing, Geopolitics, Technology, Astrology and Finance.
God Bless!
Lateral Thinking 