Msme Banking
The blog explains Merchant Discount Rate (MDR) charges, which are fees merchants pay for accepting card and digital payments, and provides insights into related costs like Payment Service Provider (PSP) fees and interchange fees. It also highlights the benefits of digital payment options like UPI for reducing transaction costs.
Merchant Discount Rate (MDR) is the fee merchants pay for accepting card payments and digital transactions, usually between 2-3%.
For a ₹10,000 transaction, a 2% MDR charge means a ₹200 fee for the merchant.
Merchants can negotiate MDR rates based on expected transaction volumes.
Many merchants prefer UPI payments over card payments to avoid MDR fees.
With changing technology, how business owners can execute payments has 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, you must pay a fee from the merchant's end to provide your clientele with such payment facilities. This article will help you understand the various costs associated with digital payment services. Before 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 must usually agree to this rate as decided by the payment service provider and set up the facility before they can start accepting digital payments.
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 must 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.
Let's take an example to help you understand what PSP is in UPI, net banking, and credit/debit cards. Suppose you run an offline clothing business in your city. Since sales are growing, you receive retail customers who want to purchase 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 must first 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. PSPs are also responsible for ensuring security in digital payment transactions between you and your customers. The PSPs levy a PSP fee to process digital payments on your business's behalf, which varies from provider to provider.
Three pillars ensure that payment processing is successful when customers pay via credit or debit cards. They are as follows:
With every transaction of this sort, the funds get transferred from the issuing to the acquiring bank, and the issuing institution facilitates the entire process. 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 and 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 Facilities, and various 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.
Disclaimer: *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 entities and for select Current Account variants only. For other entity types, please connect with the nearest branch.