The Merchant Discount Rate is the fee that merchants must pay to their acquiring bank (or payment processor) for processing card payments. When customers pay with their credit or debit cards, merchants are charged a merchant service charge. This fee includes the merchant discount rate and other processing fees.

The merchant discount rate commonly referred to as MDR, is a percentage-based fee that a merchant pays for the privilege of accepting payments from popular payment cards such as Visa, Mastercard, American Express and Discover. It typically ranges from 1% to 3% of the transaction amount, and is paid to the acquiring bank. This fee is also used to cover the costs of card network access and the services that accompany it.

In addition to the merchant discount rate, merchants must pay additional fees for setting up card payment processing, such as registration and terminal fees, monthly minimum fees, and per-transaction fees. The total cost of card payments for each transaction can be higher or lower, depending on the merchant’s type of business, the volume of transactions processed, and the type of cards being accepted.

Because merchants must factor in the merchant discount rate when setting prices, customers may also be subject to hidden fees. This is common in the restaurant industry, where prices are often listed excluding the merchant service charge. Some merchants also pass the fee on to their customers in the form of a surcharge.

For merchants, understanding the merchant discount rate is essential for managing the cost of card payments. Organizations should review their card agreements often and compare against competitive solutions to ensure they are getting the best rate possible. While the merchant discount rate acts as an additional cost for merchants, accepting card payments provides more revenue opportunities, access to a larger customer base, and more convenience for customers.