Payments · 2 October 2026

What is MDR (Merchant Discount Rate) and How is it Charged?

Short answer

MDR, or merchant discount rate, is the fee a business pays to its bank or payment provider for every card or digital payment it accepts, usually a percentage of the transaction amount. It is shared between the bank that issued the customer's card, the card network and the bank or provider that serves the merchant. In India, MDR on regular UPI payments and RuPay debit cards is zero, while other cards carry an MDR that depends on the card type and your agreement.

How MDR works and who gets it

When a customer pays ₹1,000 by card, the business does not receive the full ₹1,000. The MDR is deducted, either from each settlement or in a monthly bill, and the rest reaches your bank account. The fee pays for running the payment system and taking on the risk of fraud and disputes.

Issuing bank: the bank that gave the customer the card. It receives the largest share, called interchange.
Card network: Visa, Mastercard, RuPay and others charge a network or scheme fee.
Acquirer: the bank or payment provider that gives you the POS machine or online checkout keeps the remaining margin.
GST: GST is charged on the MDR amount, which adds to the total cost.

MDR on UPI, debit cards and credit cards

UPI from bank accounts: zero MDR under government rules for person-to-merchant payments.
RuPay debit cards: zero MDR under the same rules.
Other debit cards: RBI has set caps on debit card MDR in the past, so it is usually lower than credit cards. Check the current rates with your provider.
Credit cards: MDR is not capped and is higher. Premium, business and international cards usually cost more than standard cards.
UPI payments from wallets or credit lines: these can carry an interchange fee for merchant payments, depending on the payment type and amount.
Online vs in-store: online card payments often have a different rate from card-present payments on a POS machine.

How to calculate your real payment cost

To see what card acceptance really costs, look beyond the headline MDR percentage. Add GST on MDR, any fixed fee per transaction, device rental and fees for refunds or chargebacks, then divide the total by your card sales for the month.

Ask for the MDR by card type, not one blended number.
Check whether the rate changes for international cards and EMI payments.
Read the settlement statement to see the MDR and GST deducted from each payment.
Compare the effective rate every few months as your sales mix changes.

Ways a business can lower MDR

Encourage UPI and RuPay debit for small and everyday payments, since they carry no MDR.
Show a QR code and a soundbox next to the card machine so customers can choose UPI easily.
Negotiate rates as your monthly card volume grows. Larger volumes usually get better pricing.
Route online payments smartly: a payment orchestration layer can send each payment to the provider with the best rate and success rate.
Reduce failed and disputed payments, since chargebacks and retries add hidden costs.

Frequently asked questions

What is the full form of MDR in banking?

MDR stands for Merchant Discount Rate. It is the fee a merchant pays on each card or digital payment it accepts, usually a percentage of the transaction amount.

Is there MDR on UPI payments?

Regular UPI payments from a bank account to a merchant carry zero MDR under current rules. Some UPI payments funded by wallets or credit lines can carry a fee, so check with your provider.

Can a shop add the MDR to the customer's bill?

Card network rules and acquirer agreements generally do not allow merchants to add a surcharge for card payments. Treat MDR as a cost of doing business and plan your pricing for it.