What is the Merchant Discount Rate (MDR)?
Blog post from Basis Theory
Merchant Discount Rate (MDR) is the composite fee merchants pay payment service providers to process transactions, typically averaging 1% to 3% and covering costs for gateways, card networks, acquiring and merchant banks, and the provider’s margin. Unlike interchange fees, which are largely standardized card-network charges that vary by card type, geography, and merchant category, MDRs are provider-specific and may use flat-rate, interchange-plus, or less common tiered pricing models. MDR can also include supplementary costs such as cross-border, refund, and chargeback fees, making providers’ pricing difficult to compare and potentially more variable than interchange. Merchants can often negotiate MDR based on anticipated volume or reduce costs by routing transactions among multiple payment providers, though full-service providers may offer convenience and reduced PCI-DSS compliance exposure in exchange for higher flat fees and limited access to customer card data. Third-party tokenization services can help merchants preserve secure access to payment credentials while allowing transactions to be sent to different providers, supporting greater pricing flexibility and automated payment-routing decisions.
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