MDR Charges You Must Know About

MDR Charges You Must Know About

15 June, 2023

With changing technology, the way business owners can execute payments has also changed drastically. Today you can smoothen your operations by opting for digital payment systems that save time and money. From QR Codes to UPI payments, customers can enjoy convenient ways of making payments without having to pay extra money. However, from the merchant’s end, you must pay a fee to provide your clientele with such payment facilities. This article will help you understand the various costs associated with digital payment services.

What are MDR charges?

Before moving on to understanding what MDR charges are, you must first comprehend the meaning of MDR. MDR stands for Merchant Discount Rate and refers to the rate at which merchants are charged for accepting Debit Card and Credit Card payments and funds paid via net banking and Digital Wallets. Merchants are usually required to agree to this rate as decided by the payment service provider and set up the facility before they can start accepting digital payments.

Generally, MDR charges are around 2-3% of the transaction amount. For instance, if a customer has made a purchase to the tune of ₹10,000 and paid via credit card, then as per 2% MDR charges, the merchant will have to pay ₹200 to accept the payment.

However, before accepting a payment provider’s services, you as a business owner can negotiate with them regarding the particular MDR charges. You can base your demand on the total transaction value you expect to achieve from your customers.

MDR is one of the primary reasons merchants tend to favour UPI payments over card-based payments. When customers pay via UPI, merchants have to pay no processing fee instead of the MDR levied on card payments.

To know more Ways To Integrate UPI Payment Gateway In Websites And Apps, click here.

What is Payment Service Provider (PSP) fee?

To understand what PSP is in UPI, net banking, Credit Card\Debit Cards, etc., you can consider this example. Suppose you run an offline clothing business in your city. Since sales are growing, you receive retail customers who want to make purchases but pay via credit cards, debit cards, and other alternative payment methods. To meet this new demand, you have to shift from accepting cash payments to providing facilities that allow your clients to pay in a non-traditional manner via a website or an app. To that end, you first need to find a Payment Service Provider (PSP).

A PSP is the payment middleman who connects your customers to your business. It enables you to accept payments through modes such as credit cards, debit cards, UPI, net banking, etc. Plus, PSPs are also responsible for ensuring security in digital payment transactions between you and your customers. A PSP fee is levied by the PSPs to process digital payments on behalf of your business and varies from one provider to another.

What is Interchange Fee?

When customers pay via credit or debit cards, three pillars ensure that the payment is processed successfully. They are as follows:

  • An issuing bank that provides the credit or debit card in question.

  • An acquiring bank where the amount is transferred after the transaction.

  • Issuing institutions like VISA and MasterCard.

With every transaction of this sort, the funds get transferred from the issuing to the acquiring bank, with the entire process being facilitated by the issuing institution. An interchange fee is an amount paid to the issuing bank by the issuing institutions after they collect the same amount from the acquiring bank. It comes up to a percentage of the total transaction amount along with an accompanying fixed charge.

Now that you know more about the various charges associated with digital payments, you can plan your business’ finances accordingly. To help you meet your business needs, you can rely on the financial solutions provided at HDFC Bank. At HDFC Bank, you can secure capital funding via Business Loans, Overdraft Facility, and a range of other solutions for MSMEs. - We also offer a one-stop holistic business platform called SmartHub Vyapar through which you can streamline and run your various business operations, smoothly, securely and conveniently.

Click here to Download SmartHub Vyapar for your business.

​​​​​​​*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. HDFC Bank SmartHub Vyapar is available to only Individual & Sole Proprietorship entity and for select Current Account variants only. For other entity types, please connect with the nearest branch.

Click here to Download SmartHub Vyapar for your business.

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