February 9, 2025 · 12 mins read
Santosh Kumar
India's economy is almost running on cashless payment transactions, and it's working successfully. With many modes of instant payment options available, citizens hardly need to carry a credit card or a debit card. Financially, India is taking modern measures with technology to fast-track development, but is this development beneficial to the citizens?
Many platforms, such as RuPay, promote affordable online banking, with many perks and cashback available for customers. A Merchant Discount Rate is also applied to merchants for every transaction. With every transaction, the merchant will pay a certain percentage. How appropriate or inappropriate this is will be disclosed in the following article.
RuPay is known to be a payment platform for buyers and sellers. With the use of a UPI ID or a QR Code, citizens of India can send and receive money instantly. RuPay was launched in the year 2021 by NCPI and had a steady motive of making India a “cash less” economy. Providing an affordable transaction platform for merchants and users, RuPay enables users to easily make money transactions.
RuPay, Visa, and Mastercard are all card brands that offer various benefits and services. One can decide which card is best for use based on one's needs and preferences.
Acceptance: RuPay is designed primarily for domestic use in India, making it unfeasible for international travel. Visa and Mastercard, on the other hand, have a global presence and are preferred for international transactions and travel.
Cost: RuPay does not charge service fees, whereas Visa and Mastercard charge quarterly and annual fees to their users.
Features: RuPay sustains its focus on financial inclusion and an easy payment system. Visa and Mastercard always produce innovative features, enhanced security measures, and a wide range of credit card options.
Security: RuPay is known to reduce the potential risk of data mishandling as it possesses and shares information on Indian networks. On the other hand, Visa and Mastercard contain Robust Security Measures.
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RuPay does not charge any fee for sending and receiving money. However, merchants are charged a certain fee of 1.1% which is known to be INR 27.5 on every transaction. Why have such a fee for merchants? It is to improve the banking infrastructure and functionality of the UPI system. The vision of RuPay as a platform was initially initiated to make India a "Less Cash" economy, which is, in reality, today's truth. Every loan, credit, payment, and transaction made via the mentioned above is now online. Linking bank cards to UPI platforms is the new norm.
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MDR, Merchant Discount Rate, is a fee merchants must pay to accept customer debit and credit card payments. A percentage, from 1% to 3% of the transaction amount, is charged in the name of Merchant Discount Rate or MDR to the merchants for transactions above INR 2,000 via debit and credit cards.
Merchant Discount Rate, or MDR, is a fee the payment processing company applies to the business for each transaction made via credit or debit card. MDR charges on RuPay Credit Card UPI are charged by the card network, the bank acquired by the merchant, and the bank card.
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Merchant Discount Rate is charged uniquely for different types of business, such as the following: Small Businesses: a business with a turnover of up to Rs. 20 Lakhs will substantially pay a lower Merchant Discount Rate.
Medium and Large Businesses: Any business with a turnover of more than Rs. 20 Lakhs in a year is bound to pay a higher Merchant Discount Rate.
Low-Risk Businesses: Businesses in categories such as education, utility, and government payments pay a substantially lower Merchant Discount Rate.
High-Risk Businesses: Merchants or businesses in categories such as e-commerce and donations tend to pay a higher Merchant Discount Rate.
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In India, Merchant Discount Rate is charged. This amount is a fee paid by merchants to payment processors and banks for accepting credit card and debit card transactions. This fee is applied due to the services provided by entities such as the card issuer and the payment network, like Visa and Mastercard. Alongside the two mentioned above, the merchant acquiring bank also provides its service in this process, as the customer uses a credit card to pay at the merchant store.
A Merchant Discount Rate is charged to compensate these entities for facilitating the digital payment process. The charges can depend on various factors. The Merchant Discount Rate (MDR) on RuPay Credit Card UPI is charged on the following factors:
GST: Merchant Discount Rate is subject to goods and services tax.
The Threshold: MDR applies to each transaction that exceeds a certain threshold, which also depends on the business's category.
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As of today, RuPay charges a Merchant Discount Rate Fee of 2% to its Merchants and business owners for every transaction made via RuPay Credit Card UPI. To be precise, 2% of the charges are applied to businesses for processing credit card and debit card transactions. Small merchants pay almost zero for transactions up to Rs. 2,000.
The Merchant Discount Rate, or MDR, is then distributed among the card issuing bank, the merchant Bank, and the card network. Merchants are also permitted to NOT pay any Merchant Discount Rate charges for digital transactions up to INR 2,000 made by debit cards, Unified Payment Interface, and BHIM Aadhaar Pay. A percentage of 1.5 of MDR goes to the card issuing bank; the rest is shared among the card network and merchant acquiring bank.
Customers shall not be charged for linking their RuPay Credit Card to UPI or carrying out any transaction from the credit card linked to UPI.
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MDR for various modes of payment is different. Here are a few facts concluding the above.
MDR for mobile wallets: The merchant discount rate or MDR for mobile wallets usually varies from 0% to 1%, depending completely on the wallet provider.
MDR for debit cards: The Merchant Discount Rate for transactions made by debit cards usually varies between 0.25% and 1%. This percentage is deducted from the transaction amount.
MDR for Net Banking: Merchant Discount Rate charged over Net Banking ranges from 0% to 0.25% cut from the transaction value.
MDR for credit cards: Merchant Discount Rate for transactions made by credit cards are usually charged a percentage of 1% to 3%
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A ton of applications available in India can be helpful in linking a user's RuPay to UPI. Currently, users can link their RuPay to UPI via BHIM, Phonepe, GPay, PayZapp, GoKIWI, Slice, MobiKwik, Paytm, Groww, BHIM PNB, Cred, ICICIMobile, Jupiter, Samsung wallet, Sriram Finance, Navi, FreeCharge, AmazonPay, Fino Pay, Niyo Global, YesPay Next, Jio Finance, Union Bank of India, TATA Neu, Flipkart, Bajaj Finance Ltd, PNB One, BOB World UPI, BHIM AU, FamApp, Aditya Birla Capital Digital (ABCD), IDFC First, Freo, POPClub, SalarySe, Supemoney, BharatPe, KreditPe, AirtelThanks, OneCard, Genwise, Kodak811 and INDMoney.
Often, customers ask whether merchants are permitted to charge a higher MDR to cover the extra Merchant Discount Rate for transactions made via a RuPay credit card. The answer is NO; Merchants are not permitted to charge an extra fee for credit card users to cover the Merchant Discount Rate. This practice is illegal, as stated by the RBI. The Reserve Bank of India prohibits merchants or businesses from passing on Merchant Discount Rate charges to customers.
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The Merchant Discount Rate for businesses is regulated by the Reserve Bank of India (RBI), and these rules and regulations include the following:
1: Small Businesses with a turnover of up to Rs 20 Lakhs a year can not pay more than 0.4% of the total transaction value. In such a case, the maximum Merchant Discount Rate per bill is INR 200.
2: Businesses with a turnover of more than Rs 20 Lakhs a year can not pay more than 0.9% of the Merchant Discount Rate from the total transaction value. The maximum MDR in such cases is INR 1,000.
3: The government will bear the Merchant Discount Rate charges on debit card transactions up to INR 2,000.
4: Merchants and businesses are not permitted to pass on any Merchant Discount Rate charges to the customer.
Although merchant Discount rates may seem good for customers, merchants do not seem to find them beneficial. The merchant Discount Rate reduces the merchant's profit margin, which in turn makes it harder for the merchant to cover costs, reducing the amount of revenue a merchant keeps.
MDR strictly adds to the merchant's operating cost, thus reducing the merchant's chances of paying expenses such as rent, wages, and utilities.
Higher MDR can lead to higher costs for merchants, which can be passed on to customers. However, as per the Reserve Bank of India, passing down the merchant discount rate to the customer is illegal.
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Once the merchant figures out what MDR is applicable to them, the merchant can then begin setting up the payment profile and acceptance through credit lines, credit cards and UPI Wallets. Follow the steps below to set up a payment profile:
1: Open the Google Pay For Business application on the Smartphone.
2: Click on “Settings” and then go for "Payment Methods."
3: The option to activate RuPay credit card, credit lines, and wallet payment acceptance will appear only if the merchant is eligible.
4: The set-up process can begin now, and it will appear as "Set Up Now" at the bottom of the screen.
5: Make sure to follow the on-screen instructions available.
6: Once the merchant accepts payments that attract a Merchant Discount Rate, the merchant shall proceed to generate a payment profile.
In order to create a Payment Profile, the merchant has to follow the steps mentioned as follows:
1: Click on “Account Type”
2: Under the option "Account Type," a menu will drop down. The merchant is required to select their respective account Type.
3: Merchant is then required to fill out details like Business Name and Address.
4: The merchant is advised to confirm all details and accept all terms and conditions before clicking on "Submit."
Setting up the payment profile and payment acceptance allows merchants to accept transactions made by credit and debit cards from customers. The payment company can charge the merchant discount rate (MDR) on every transaction.
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Merchant Discount Rate charges are applied, for sure, but customers have nothing to worry about. No MDR is applied to the transaction value. Merchant Discount Rate is only applied to businesses and merchants and is subject to goods and services tax.
About 2% of charges are applied to the total transaction value of the merchant, hence reducing the profit margin for merchants. A percentage of 1.5 of the merchant Discount rate goes to the card issuing bank, and the remaining amount is shared among the merchant acquiring bank and card network, which will be 0.5%. Transactions made via credit card contain an MDR of 1% to 3%. However, that depends on the transaction amount and the business category.
Small merchants do not have to pay Merchant Discount Rates (MDR) for payments below INR 2,000. However, MDR is charged for businesses making more than Rs 20 Lakhs per financial year. Merchants are heavily discouraged the reason being that the profit margin declines for merchants, with such percentages of MDR charges on every total value of the transaction. Many times, it has been noticed that businesses push the extra charges onto the customer, which is absolutely illegal, as stated by the Reserve Bank of India.
India is racing towards a high-value economy with instant modes of payment and affordable rates charged on every total transaction value to merchants. Merchant Discount Rates are necessary to apply to merchants and business owners as they only contribute to the smooth functionality of the entire process. The 0 to 3% is totally distributed among the entities involved in bringing success to the transaction process.
Q1. Can I avoid Merchant Discount Rate Charges?
Ans: There is no need to avoid Merchant Discount Charges Rates up to INR 2,000. Merchant Discount Rates are applied to merchants only on orders above INR 2,000.
Q2. What is the Merchant Discount Rate for Credit Cards on RuPay?
Ans: The Merchant Discount Rate for credit cards on RuPay typically ranges between 1% to 3%.
Q3. Does merchant Discount Rate apply to customers sending and receiving money on UPI?
Ans: Not at all! No merchant Discount Rate is applied to customers during payments via UPI.
Q4. What is GST?
Ans: GST is a Goods & Service Tax, and Merchant Discount Rates are subject to Goods & Services Tax.
Q5. Can merchants push the MDR cost to customers?
Ans: Pushing the merchant Discount Rate to customers to cover the MDR cost is strictly illegal, as the Reserve Bank of India claims.
Q6. Are there any MDR charges on transactions below INR 2,000?
Ans: Merchant Discount Rate charges are only applied to orders above INR 2,000 and not below that amount.
Q7. What are the factors that affect the Merchant Discount Rate?
Ans: Merchant Discount Rate is often determined by the market. MDR also depends on the business category.
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