MERCHANT DISCOUNT RATE

MERCHANT DISCOUNT RATE

Subject : Economics

Context : In a push to expand their merchant networks, fintech intermediaries have come up with an innovative settlement scheme by which they waive the merchant discount rate (MDR) on offline card transactions.

Concept :

• This allows offline merchants to opt for a delayed settlement of a transaction by not shelling out the MDR rather than settling it on a next-day basis. The payment intermediary has access to the merchant’s float until the transaction is settled.
• To be sure, merchants would opt for a waiver of the MDR, typically 2-3% on the value of the purchase, only if they are severely strapped for cash. Else, it would not make sense for them to give up the float.

Merchant Discount Rate

• MDR is the cost paid by a merchant to a bank for accepting payment from their customers via digital means. The merchant discount rate is expressed in percentage of the transaction amount.
• Presently, it is applicable for online transactions and QR-based transactions.
• The amount that the merchant pays for every transaction gets distributed among three stakeholders–the bank that enables the transaction, vendor that installs the point of sale (PoS) machine and the card network provider such as Visa, MasterCard.
• MDR charges will NOT be applicable on transactions through homegrown RuPay and UPI platforms beginning January 1, 2020.