This means for every $100 you process, you pay $0.00 in fees.
How to Calculate Merchant Discount Rate (MDR)
The Merchant Discount Rate (MDR) is the percentage of the transaction amount that a merchant pays to the payment processing institution for the ability to accept credit or debit card payments. Understanding how to calculate this rate is crucial for analyzing your profit margins and negotiating better terms with payment processors.
The Core Formula
To calculate your Effective MDR based on your monthly merchant statement, use the following formula:
For example, if your business processed $50,000 in sales last month and you were charged $1,450 in total processing fees, your calculation would be:
($1,450 / $50,000) × 100 = 2.90%
Components of MDR
While the calculation above gives you the effective rate, the MDR is typically composed of three distinct parts:
- Interchange Fee: This fee is paid to the card-issuing bank (e.g., Chase, Citi). It makes up the largest portion of the MDR and is determined by the card networks (Visa, Mastercard).
- Assessment Fee: A smaller fee paid directly to the card networks (Visa, Mastercard, Discover) for the use of their network.
- Markup (Processor Fee): The amount your payment processor (acquirer) charges for facilitating the transaction. This is the only component that is typically negotiable.
Flat Fees vs. Percentage Rates
Many pricing models, such as Interchange-Plus or tiered pricing, include both a percentage rate and a flat per-transaction fee (e.g., 2.5% + $0.10). When calculating your true cost using the tool above, ensure you account for both variables to get an accurate net received amount.
Why Monitoring Your MDR Matters
A creeping MDR can silently eat into your bottom line. If your effective rate is significantly higher than the industry average for your business type (typically between 2% and 3.5% for e-commerce, and lower for retail), it may be time to audit your statement for "junk fees" or negotiate a lower markup with your processor.