How Merchant Discount Rate (MDR) Works: The Merchant Guide

What is Merchant Discount Rate (MDR)?

Merchant Discount Rate (MDR) is the commercial fee charged by acquiring banks and payment aggregators to merchants for accepting non-cash payments.

In UPI transactions, the MDR is split among:

1. Acquiring Bank / Aggregator: Deploys QR codes, soundboxes, and handles merchant settlement.
2. Issuing Bank: Manages the customer's account and debit rails.
3. Switch Network (NPCI): Routes and verifies the transaction across real-time inter-bank networks.

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The mathematical formula

For standard retail transactions above ₹2,000:

Statutory MDR Formula:
Applicable MDR = Minimum(Transaction Amount × 0.40%, ₹300)

Practical scenarios:

• ₹1,500 Grocery Order: Under the ₹2,000 threshold, so MDR is ₹0 (Free Tier).
• ₹5,000 Electronics Purchase: ₹5,000 × 0.4% equals ₹20 MDR.
• ₹25,000 Furniture Bill: ₹25,000 × 0.4% equals ₹100 MDR.
• ₹75,000 Jewellery Purchase: ₹75,000 × 0.4% reaches the statutory ceiling of ₹300 MDR.
• ₹1,50,000 Luxury Purchase: While 0.4% equals ₹600, the fee is legally capped at ₹300.

Use our Merchant MDR Calculator to model monthly turnover, projected transaction volume, and effective fee rates.