Discount Rate

Also called merchant discount rate, MDR, merchant discount

The all-in percentage a merchant pays to accept a card - interchange plus network assessments plus the processor's cut, expressed as one number.

What it is

The merchant discount rate, or MDR, is the total percentage deducted from a card sale before the money reaches your bank account. It is called a discount because historically the acquirer bought the receivable from the merchant at a discount to face value. The name stuck long after the mechanism changed. MDR has three components: interchange to the issuing bank, assessments to the card network, and the acquirer or processor markup. In the US, published all-in MDR for a small merchant typically lands between 2.2% and 3.5% depending on card mix, ticket size, acceptance method and pricing model. Flat-rate providers quote it directly - Square and Stripe style pricing near 2.6%-2.9% plus a per-item fee. Interchange-plus providers do not quote an MDR at all; they quote a markup, and your MDR falls out of your actual card mix at the end of the month. MDR matters legally as well as economically. Under Visa's US rules, a credit card surcharge may not exceed the lesser of your merchant discount rate for that card or 3%. That makes MDR the ceiling on your surcharge program, which means a merchant surcharging a flat 3% while paying an MDR of 2.4% on some card products is overcollecting and out of compliance. Documented cost of acceptance is not an accounting nicety; it is the compliance file.

Why it matters to your business

MDR is the number that determines your real cost of a sale. On $600,000 a year in card volume, the difference between 2.45% and 2.95% is $3,000. That is not a rounding error to a restaurant running on 4% net margins. It also determines what you may legally charge a customer if you surcharge. Visa caps a credit surcharge at the lesser of your MDR or 3%, and non-compliance penalties escalate from $1,000 for an initial violation to $50,000 at thirty days and $100,000 at ninety. If you cannot document your MDR by card product, you cannot run a defensible surcharge program.

Where it gets contested

The industry treats MDR as the number to compete on, which is exactly why it is nearly useless for comparison. Two processors can quote the same 2.6% and deliver wildly different outcomes, because one is passing interchange through at cost with a stated markup and the other has built a tiered schedule where most of your volume downgrades to a 3.4% bucket. The quoted rate describes the best case; your statement describes the actual case. Worse, MDR is routinely quoted on the qualified tier only. A rep says 'we'll do 2.29%.' What is being priced is a category that might cover 40% of your transactions. Rewards cards, business cards, keyed transactions and anything settled late lands elsewhere at a rate that was never in the conversation. What is actually true: the only honest way to compare two offers is effective rate on the same month of the same volume with the same card mix. Any rep who will not run your last three statements through that comparison is asking you to buy a number instead of an outcome.

How to check it yourself

Take your statement's total fees, subtract any one-time or equipment charges, divide by total card volume, and multiply by 100. That is your real MDR for the month. Do it for three consecutive months. Then compare it to the rate you were quoted at signing. Most merchants find a gap of 40 to 90 basis points.

Receipts

Claims above that are checkable, with where to check them. Published so you do not have to take anyone's word for it.

Visa's US surcharge cap is the lesser of the merchant discount rate or 3%, effective April 15, 2023
afslaw.com ↗
Visa surcharge non-compliance assessments escalate from $1,000 initially to $50,000 at 30 days and $100,000 at 90 days
afslaw.com ↗
Compliant surcharge cap logic uses the lowest of documented MDR for the card product, the network cap, and state law
intellipay.com ↗