Fees, Price Drivers and 2026 Rules
MDR explained: how card processing fees are built and why credit cards cost merchants more
What the merchant discount rate is, how it splits between issuer, network and acquirer, why card type and channel change it, and how to read MDR in an Indian merchant offer.
The merchant discount rate (MDR) is the percentage of a card payment that the merchant gives up so that the payment can be processed. On a ₹10,000 sale at 1.8% MDR, ₹180 is deducted and ₹9,820 is settled to the merchant (before GST on the fee). MDR is not one fee but a bundle: interchange for the bank that issued the customer's card, a network fee for the card scheme, and the acquirer's margin for the bank or payment aggregator that signed you up. Credit, premium, corporate and international cards carry higher interchange, and online payments cost more than card-present ones, so the same merchant can pay very different rates on different cards. RuPay debit cards are the exception: by law no charge may be imposed on them. This guide explains the structure so that you can read and challenge an offer. It belongs to the overview of merchant payment processing fees.
The three parts of MDR
| Part | Goes to | What drives it |
|---|---|---|
| Interchange | The customer's card-issuing bank | Card type (debit, credit, premium, corporate, commercial), channel (card present or online), merchant category, network rules |
| Network or scheme fee | RuPay, Visa, Mastercard, American Express, Diners and others | Network pricing, domestic or cross-border |
| Acquirer margin | Your acquiring bank or payment aggregator | Your volume, risk, negotiation, device and service costs |
The acquirer sets the price you see. Some acquirers quote a blended rate (one percentage for all cards), others quote per card type, and large merchants can get interchange-plus pricing, where you pay the actual interchange and network fee plus a fixed margin. Each has trade-offs.
| Pricing style | How it looks | Good for | Watch out for |
|---|---|---|---|
| Blended | "1.75% on all cards" | Simplicity | You overpay on cheaper cards; the blend assumes a mix that may not be yours |
| Per card type | Debit x%, credit y%, international z% | Most MSMEs | Check that "premium" and "corporate" are defined |
| Interchange-plus | Actual cost + margin | High-volume merchants | Statements are complex; needs reconciliation |
Why card type matters
From the merchant's side, the most important distinction is between:
- RuPay debit cards: no charge may be imposed on the merchant or the customer under section 10A of the Payment and Settlement Systems Act and notification S.O. 5067(E) of 14 September 2026. See zero charge on RuPay debit and UPI.
- Other debit cards: MDR is capped by the RBI (up to 0.90%, maximum ₹1,000 per transaction, for merchants with turnover above ₹20 lakh; lower for smaller merchants). See debit card MDR caps.
- Credit cards: no regulatory cap. The DFS/NPCI FAQ on UPI MDR (15 September 2026) says standard credit-card MDRs "typically range from 1.5% to 2.5%". Premium, commercial and international cards are usually at the upper end or above.
- International cards: cross-border interchange and network fees are higher, and a currency conversion may be involved.
Why channel matters
| Channel | Typical cost relative to card present | Reason |
|---|---|---|
| Card present, chip and PIN or contactless | Lowest | Lowest fraud risk |
| Tap-on-phone or mPOS | Similar to card present for the card, plus device and app costs | Card is present but device is a phone |
| Online (card not present) via a gateway | Higher | Higher fraud and chargeback risk, gateway services |
| Payment links, recurring and EMI | Varies; EMI often much higher | Extra services, issuer EMI programmes |
Worked example: same sales, different mix (illustrative)
Two shops each take ₹4,00,000 a month on cards. The acquirer quotes the same per-card-type rates to both: RuPay debit 0%, other debit 0.9%, standard credit 1.7%, premium and corporate credit 2.4%.
| Card type | Shop A sales | Shop A fee | Shop B sales | Shop B fee |
|---|---|---|---|---|
| RuPay debit | ₹1,20,000 | ₹0 | ₹20,000 | ₹0 |
| Other debit | ₹1,60,000 | ₹1,440 | ₹60,000 | ₹540 |
| Standard credit | ₹1,00,000 | ₹1,700 | ₹1,60,000 | ₹2,720 |
| Premium/corporate credit | ₹20,000 | ₹480 | ₹1,60,000 | ₹3,840 |
| Total | ₹4,00,000 | ₹3,620 | ₹4,00,000 | ₹7,100 |
Shop A's effective rate is 0.91%; shop B's is 1.78%. If both were offered a blended 1.4%, shop A would pay ₹5,600 (more than its per-type cost) and shop B ₹5,600 (less). A blended rate is not good or bad in itself; it depends on your mix. Add 18% GST to the fees in each case.
How to read MDR in an offer
- List every card type and channel in the rate card: debit (RuPay and others), credit (standard, premium, corporate), international, online, EMI.
- Look for fixed fees per transaction, which matter for small tickets: ₹3 on a ₹150 sale is 2%.
- Check minimums. A minimum monthly fee or minimum MDR per transaction raises cost when sales are low.
- Ask whether rates include GST. Most quotes are before GST.
- Ask how rates change. Is there a notice period? Are promotional rates time-limited?
- Ask about DCC. Dynamic currency conversion on international cards can affect customer complaints and chargebacks.
The offer comparison checklist puts these questions in order.
Common misunderstandings
- "MDR is a government tax." It is not; it is a commercial charge, except where law sets it to zero or caps it.
- "The customer's bank charges me." Indirectly, through interchange; your contract is with the acquirer.
- "All debit cards are free." Only RuPay debit cards are covered by the statutory zero charge. Other debit cards are capped, not free.
- "I can pass MDR to the customer." RBI instructions say merchants should not pass debit-card MDR on, and network rules and most agreements restrict surcharges. See the surcharge guide.
FAQ
Who decides interchange in India?
Card networks set interchange for their cards, within any rules the RBI or the law sets. NPCI sets it for RuPay; the zero-charge rule overrides it for RuPay debit.
Can I negotiate MDR as a small merchant?
Often only within standard tiers. You can still choose between pricing styles, ask for per-card-type rates and compare several acquirers.
Is MDR charged on refunds?
Practice varies. Some acquirers do not return the original MDR when you refund; some charge a refund fee. Ask and get it in writing.
Does MDR differ for QR-based card acceptance?
For debit cards, the RBI caps are lower for QR acceptance (0.30% and 0.80%) than for terminal acceptance (0.40% and 0.90%).
Sources
- Reserve Bank of India — rationalisation of MDR for debit card transactions and payment system directions
- NPCI — RuPay and UPI rules
- Department of Financial Services — FAQ on MDR on select UPI P2M transactions (15 September 2026), which cites typical card MDR ranges
- CBIC GST — GST on financial service charges
