Pricing
Merchant Discount Rate
Definition
Merchant Discount Rate the total percentage fee a merchant pays for accepting card payments, encompassing interchange, scheme fees, and acquirer markup. Often shortened to MDR. In blended pricing models, this is presented as a single rate (e.g., 2.9%). In IC++ pricing, the components are itemized separately. MDR varies significantly by merchant risk profile, volume, and negotiating power.
Related Terms
Interchange Fee
The fee paid by the acquiring bank to the issuing bank each time a card transaction is processed. Set by card networks (Visa, Mastercard), interchange varies based on card type (debit vs credit, rewards vs standard), merchant category code, transaction type (card-present vs card-not-present), and geography. Interchange typically represents the largest component of payment processing costs, ranging from 0.2% for regulated debit to 2%+ for premium rewards cards.
Blended Rate
A pricing model where the acquirer charges a single flat percentage for all transactions regardless of card type or interchange category. Simple to understand but often more expensive than IC++ for merchants with diverse card mixes. The acquirer calculates an average rate and takes margin on the spread between actual interchange and the blended rate charged. Common with PayFacs and mainstream PSPs targeting smaller merchants.
Interchange Plus Plus (IC++)
The most transparent pricing model in payments, breaking costs into three components: actual interchange (paid to issuer), scheme fees (paid to card networks), and acquirer markup (the processor's profit). Merchants see exactly what each transaction costs and can optimize accordingly. IC++ typically benefits larger merchants ($100K+/month) with diverse card mixes and becomes available at higher volumes.
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