What is Merchant Discount Rate and How it Works?

The merchant discount rate (MDR) is a fee charged to merchants for processing payments that are done via debit and credit cards by the customers.

The Malaysian digital payment industry is at a surge after the global pandemic.

With more and more people switching to a cashless transaction system, business owners are now developing infrastructure to facilitate those transactions.

If you’re also a business owner/merchant, you may have heard of a term called Merchant Discount Rates.

In order to accept payments by credit/debit cards, merchants are required to set up the merchant discount rate and have to agree to pay that amount to the bank.

However, for payment processing, merchants have a range of available options too. For easier fee structures and lower rates, a Low MDR Payment Gateway is recommended.

This is because processing fees through banks are higher due to the full-service consolidation.

Fintech processors can also set up the merchant payment processing directly with a bank and most the payment processors offer e-commerce payment processing for more convenience.


Merchant Discount Rate and How It Works?

Today’s digital advancements have brought many conveniences to the lives of consumers.

E-commerce is now gaining more traction due to its digital mode of payment.

By acknowledging the convenience and the various advantages of digital payment, consumers are gradually adopting this process.

The technological evolution has gained the trust of consumers who are likely to spend more on e-commerce websites due to their transparency and monetary guarantee.

Moreover, with the global rise of e-commerce and online platforms, businesses will have to adapt to the variation and a more complex method of payment processing costs.

 Paying from multiple sources is now a viable option as consumers are offered electric network payments.

It is beneficial for both customers as well as merchants.

When customers pay via network payments, merchants will require a minimum charge where the charge helps support the payment of the merchant discount rate.


What is Merchant Discount Rate & How Does It Work in Malaysia?

Merchant Discount Rate or the common abbreviation is known as MDR. It is a fee that is assessed upon the process of receiving payment from a customer charged via debit and credit card.

MDR comprises a range of elements such as fees, network charges, mark-ups, assessments, and dues by the merchant which are required for debit and credit card payments.

Specifically, the MDR is also inclusive of interchange fees, miscellaneous fees like cross-border fees or zero-limit fees, and point-of-sale and gateway fees.

To make it simple, a consumer purchases goods or services from a merchant and uses a debit or credit card to make payment which is typically done with the use of a point-of-sale device at the merchant’s outlet or online websites.

Upon receiving the payment, the merchant bank charges a fee which is the MDR.

Once the MDR fee is collected by the merchant bank, it is then split with the bank that issued the credit card which has been used, the bank that provided the device or POS terminal, and the payment network (such as Visa Mastercard and so on).


How Merchant Fees are Determined?

There are several key factors in how merchant processors determine the merchant discount rate in Malaysia including:

  • General risk of the industry
  • Mode of card payment processing – such as internet, terminals
  • Annual credit selling volumes

As a merchant, what do you need to know on how to calculate the merchant discount rate?

Customarily, the MDR is calculated as a percentage of the value of each transaction that is processed.

The rates often depend on the level of business transactions, types of cards used by the customers (debit or credit), and the value of the average sales or average ticket.

The interchange fee is the key component of the discount rate. In addition to the interchange fee, all ISOs and banks have reals costs where a merchant makes a profit by adding a mark-up to the mentioned fees.

Several price models will be utilized to work out the fees that will be charged.

Merchants can expect a fee payment ranging between 1% to 3% for each transaction that is processed.

The fees and fee agreement involved in an account for a merchant can be complicated.

A wide range of providers are available to choose from to assist the merchants and each provider offers varying fee schedules.

By using a specific provider, the merchant will be required to pay a processing fee for the deposit and network and interchange fees for obtaining an amount from the customer’s account.

The additional costs for added security in e-commerce make merchant discount rates typically higher for this market.

Fee schedules are typically charged at the merchant discount rate although there are payment providers who provide charges at a flat monthly rate.

The latter is usually based on an assumption of the volume of transactions that will be processed.

The merchant is required to pay for two providers for each transaction if the service arrangements include an interchange provider with a bank.

A bundled merchant discount rate through bundling all network processing is available with a bank but this generally increases the fees.


Importance of MDR and Other Payment Processing Fees

Payment processors are able to support all types of merchant payments with well-established infrastructures and fee schedule arrangements set in place.

As part of sustaining the infrastructure and services, payment processing fees are vital which also further encourages the global e-commerce market.

Payment processors have led to faster transaction processing and automated point-of-sale systems with multiple payment options including debit and credit cards.

Enabling an expansion in business activities, the connection between payment processors and merchants is the thrust of technological advancement.



The merchant discount rate is a payment charged to merchants upon processing transactions through debit and credit cards.

In order to accept payments by the mentioned cards, merchants are required to set up the merchant discount rate and agree to the specified amount.

However, for easier fee structures and lower rates, a Low MDR Payment Gateway is recommended.

With Mobi, you’re getting the lowest MDR that helps you to keep the most of what you make.

Developed with a cutting-edge and easy-to-use technology, Mobi aims to serve businesses to their needs and focus on creating better deals.

Sign up today for this Best Payment Gateway Malaysia to know more about it and its pricing and plans.


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