Merchant Discount Rate (MDR)

Who charges the merchant discount rate?

The acquiring provider charges the merchant for card acceptance under their agreement. The acquirer is the provider serving the merchant side of the card transaction. In Mastercard’s explanation, the acquirer establishes the merchant discount rate; Mastercard does not set the price agreement between that acquirer and the merchant.

Source: Mastercard, “Mastercard interchange rates and fees” (Mastercard U.S. merchant explanation; card acceptance fee structure), accessed 2026-09-03.

MDR is not another name for interchange

In a common four-party card model, the parties are the customer, the customer’s card issuer, the merchant and the merchant’s acquirer. Interchange generally passes from the acquirer to the issuer. It is only part of what the merchant pays for acceptance, rather than a substitute for the merchant’s contracted rate.

Source: Mastercard, “Mastercard interchange rates and fees” (Mastercard U.S. merchant explanation; card acceptance fee structure); Reserve Bank of Australia, “Merchant Card Payment Costs and Surcharging: Issues Paper” (Australian fee terminology and structural explanation as at October 2024), accessed 2026-09-03.

The Reserve Bank of Australia separates merchant service fees into interchange, scheme fees and an acquirer margin. Scheme fees are charges associated with the card network. Its explanation also separates other acquiring fees from that service fee. These labels help explain the layers, but the inclusions in an MDR quote still need to be checked.

Source: Reserve Bank of Australia, “Merchant Card Payment Costs and Surcharging: Issues Paper” (Australian fee terminology and structural explanation as at October 2024), accessed 2026-09-03.

Illustrative example: a rate is not the whole bill

Suppose an agreement quotes a hypothetical 2% charge on a $100 card sale, with no fixed transaction fee in this example. The percentage charge is $2. The remaining $98 is not a promised bank payout: any other agreed fees or adjustments have not been included in this simplified calculation.

Source: Reserve Bank of Australia, “Merchant Card Payment Costs and Surcharging: Issues Paper” (Australian fee terminology and structural explanation as at October 2024), accessed 2026-09-03.

For a monthly comparison, suppose included acceptance charges total $250 on $10,000 of included card sales. Dividing $250 by $10,000 gives 2.5%. That is a calculated effective cost for the defined sample, not proof that the contracted MDR was 2.5%. Use the same period, currencies and fee categories when comparing another proposal.

Source: Reserve Bank of Australia, “Merchant Card Payment Costs and Surcharging: Issues Paper” (Australian fee terminology and structural explanation as at October 2024), accessed 2026-09-03.

A quote-comparison checklist

Source: Mastercard, “Mastercard interchange rates and fees” (Mastercard U.S. merchant explanation; card acceptance fee structure); Reserve Bank of Australia, “Merchant Card Payment Costs and Surcharging: Issues Paper” (Australian fee terminology and structural explanation as at October 2024); Stripe, “Merchant accounts 101: What they are and how to get one” (General merchant-account explanation and Stripe service model), accessed 2026-09-03.

Common mistakes

• Reading “discount” as a customer price reduction. Here it describes a merchant acceptance charge.
• Using a published interchange rate as the merchant’s complete price. Interchange is only one component.
• Comparing a bundled quote with a pass-through markup without accounting for what each excludes.

Source: Mastercard, “Mastercard interchange rates and fees” (Mastercard U.S. merchant explanation; card acceptance fee structure); Reserve Bank of Australia, “Merchant Card Payment Costs and Surcharging: Issues Paper” (Australian fee terminology and structural explanation as at October 2024); Chase, “Glossary” (Chase merchant-processing terminology), accessed 2026-09-03.

What to read next

Read merchant acquirer for the contracting role and merchant account for the account arrangement. For a proposal review, collect a sample statement and a complete fee schedule before calculating an effective cost. This entry explains the term; it does not quote a market rate or a legal fee cap. To turn a fee schedule into an effective rate, the credit card processing fee calculator itemises the percentage, fixed, international and conversion parts of the cost.

Source: Stripe, “Merchant accounts 101: What they are and how to get one” (General merchant-account explanation and Stripe service model); Reserve Bank of Australia, “Merchant Card Payment Costs and Surcharging: Issues Paper” (Australian fee terminology and structural explanation as at October 2024), accessed 2026-09-03.

Editorial note: AI-assisted educational content prepared for HaiPay. It is not investment, legal or tax advice. The cited sources explain the concepts; your provider agreement and applicable rules govern your arrangement.