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MDR refers to the fee charged to a merchant by a bank for accepting payments from customers via digital modes like credit cards, debit cards, UPI etc. This article provides a detailed overview of key aspects of MDR including its full form, applicable charges, benefits, recent changes and ways for merchants to reduce MDR costs.
MDR stands for Merchant Discount Rate. It is a fee charged from merchants or business owners when they receive payments from customers via digital methods.
MDR essentially is a percentage deduced from the transaction amount before the remaining amount gets credited to the merchant. It is the cost paid by the merchant to the bank or payment gateway for providing digital payment acceptance services.
MDR charges consist of:
So MDR = Interchange fee + Processing charges + Network fee + GST
MDR is applied as a percentage of the transaction amount. Following are the typical MDR charges for different modes of digital payments in India:
MDR charges are automatically deducted from the merchant’s account at the time of settling the transactions batch.
MDR mechanisms serve the following purposes:
By paying MDR, merchants can easily provide convenient digital payment options to customers. It provides the backend infrastructure seamlessly.
While MDR charges are meant to be standardized, merchants do have some options to reduce the impact of MDR costs on their revenues. Here are some tips for merchants to consider for lowering their overall MDR payouts:
Large merchants who process very high volumes of digital transactions can negotiate with their banks for lower MDR rates. Banks could be willing to lower charges for big merchants in order to retain their business. Retail chains, online sellers etc. could negotiate based on monthly volumes.
As UPI payments have zero MDR on transactions up to Rs 1000, merchants can incentivize customers to pay via UPI instead of credit cards. This will lower the volume of credit card swipes, which have higher MDR.
Certain banks do provide lower MDR merchant accounts to acquire new SME clients. New merchants must evaluate such offers before selecting their payment acceptance bank to save on MDR for the long term.
To promote a cashless economy, understanding MDR components, costs and negotiation strategies is important for merchants and customers alike. With the right knowledge and constant monitoring, merchants can optimize their digital payment acceptance costs. UPI and RuPay adoption can be encouraged by educating stakeholders about MDR. Thus, transparency and awareness about Merchant Discount Rate would benefit the entire digital payments ecosystem.
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