What is Merchant Discount Rate (MDR)?

Merchant Discount Rate (MDR) is the fee charged to merchants by banks or payment processors for processing digital transactions, covering service costs and transaction security.

Context: Recently the Union Cabinet approved a ₹1,500 crore incentive scheme to promote low-value BHIM-UPI transactions.

What is Merchant Discount Rate (MDR)?

Merchant Discount Rate (MDR) is a fee charged to merchants for processing digital transactions.
It is deducted from the transaction amount before the merchant receives payment.
MDR covers the costs of banks, payment service providers, and digital payment platforms.
It is also known as the Transaction Discount Rate (TDR).

Who pays MDR?

Normally, merchants pay MDR for card-based and UPI transactions.
In the UPI framework, the government covers MDR for small transactions to promote digital payments.

Key Features of the Scheme

Person-to-merchant (P2M) transactions up to ₹2,000 will be incentivized.
Banks will receive an incentive of 0.15% per transaction to encourage UPI adoption.
Small merchants will benefit as they pay zero MDR.
Transactions above ₹2,000 will remain MDR-free but will not receive incentives.