It’s time to get rid of MDR in payments – Merchant Discount Rate

Merchant Discount Rate in Payments Needs to Go Away

Merchant Discount Rate (MDR) sounds like a good thing. Who doesn’t want a discount? But the term is highly misleading. Watch out. When you hear MDR from your payment processor, think hidden fees.

What is a merchant discount rate (MDR)?

There are several pricing models in payments and MDR is used in the “tiered” pricing model. MDR is the base price, paid by a merchant to a bank, for accepting credit card payments from their customers. The MDR is typically between 1.2% and 2.9%.

You need to know that the MDR is not the total amount you pay for payment processing. It is the base price. There are always other fees on top of the MDR.

The misleading part of MDR

Payment processors that use tiered pricing may quote you with an MDR of 1.5% which sounds great. That’s a good rate. Merchants will sign up thinking they got the great rate of 1.5%. The massive “BUT” is that there are only a few types of transactions where a merchant will even get close to the MDR. Those are generally card-present transactions (i.e. no online, no virtual terminal, etc), using chip-and-pin, with a customer that is using the most basic of credit card types (i.e. no rewards cards, no corporate cards, etc.). That’s in the fine print many merchants don’t read. You can call those “hidden fees”.

It’s almost certain that more than 50% of your transactions will not qualify. The transactions that don’t “qualify” have what’s called a non-qualified surcharge added. This may be an extra 1% or even 2%. What also makes this unfair is that each payment processor controls what transaction goes into what qualification rate, making it difficult to do a price comparison between providers. The solution is to move away from tiered or MDR pricing.

Clearly Payments has not once priced a customer with an MDR, nor has it ever given a non-qualified surcharge. We’re allergic to them. Most payments experts believe that if your company is using tiered pricing, you are almost certainly paying too much.

The best payment processing pricing for merchants

There are three models that are friendly to merchants that makes it very difficult to have hidden fees and makes it easier to price shop.

Clearly Payments offers the above three models and we will help you get set up on the cheapest payment processing. Get started now.


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