About MDR
- Merchant Discount Rate (MDR) is the fee paid by a merchant for accepting a digital payment.
- It is generally deducted from the transaction amount before the remaining amount is credited to the merchant.
For example, at 0.4% MDR, a ₹10,000 payment would involve an MDR of ₹40.
Who is Involved in MDR?
The MDR supports different participants of the payment ecosystem, including:
- Issuing Bank – bank of the customer.
- Acquiring Bank – bank serving the merchant.
- Payment Network – facilitates transaction processing.
- Payment Service Providers/Apps – provide payment infrastructure and services.
Thus, MDR helps meet the technology, infrastructure, processing and security costs of digital payments.
P2P vs P2M
- P2P (Person-to-Person): Individual → Individual → No MDR applies.
- P2M (Person-to-Merchant): Customer → Business → MDR may apply
MDR is therefore primarily associated with merchant acceptance of digital payments.
MDR and UPI
- UPI had operated under a zero-MDR regime since January 2020, introduced to encourage digital-payment adoption. The latest framework introduces a targeted MDR for selected higher-value P2M transactions while keeping everyday low-value payments free.
Current MDR Framework
| Category | MDR |
| Up to ₹2,000 | No MDR |
| ₹2,001–₹74,999 | 0.40% |
| ₹75,000 and above | ₹300 cap |
| Selected essential services | ₹5 flat |
| Specified capital-market payments | 0.02% |
| SIPs & recurring mandates | No MDR |
- Small merchants receiving up to ₹1 lakh per month through UPI QR also remain exempt under the P2PM framework.
- At the same time, keeping MDR low is important to prevent digital-payment acceptance costs from becoming a burden on merchants.
Conclusion
MDR is essentially the cost associated with merchant acceptance of digital payments. Understanding its role helps explain how payment networks balance affordability for users, merchant acceptance and the financial sustainability of digital-payment infrastructure.
| This concept has been discussed in detail in the following article : NPCI Introduces Revised MDR Framework for High-Value UPI Transactions |