In the complex world of financial transactions, merchants are often left clueless or overwhelmed with various fees and terms. Among these, the Merchant Discount Rate (MDR) holds significant importance. This is the fee charged on a credit card merchant account by payment processors for facilitating card transactions.

In this blog, we will be reading about a credit card merchant account and everything associated with the Merchant Discount Rate.

Understanding the Merchant Discount Rate (MDR)

Merchant Discount Rate (MDR), is also known as the discount rate or the transaction discount rate (TDR). It is generally calculated as a percentage of the transaction amount and shown as a single percentage.

It is a sum of:

• Interchange fee: Established by the credit card network (e.g., American Express, Visa), this fee is charged by the card-issuing bank to the merchant's bank.
• Assessment fee: It is charged by the credit card network (e.g., American Express, Visa) for using its network. It generally ranges from 0.10-0.15 percent of the total transaction amount for a majority of domestic transactions.
• Markup fee: This is usually a negotiable fee that gets divided among the various entities involved in the transaction.

Calculation Of MDR

MDR = (Transaction Amount × Percentage Rate) + Fixed Fee

Merchants may negotiate MDR with payment processors, especially if they have a high transaction volume. The success of such negotiations greatly depends on factors such as the competitiveness of the payment processing market, the type of credit card merchant account, the industry, and the merchant's creditworthiness and record. Merchants may have to demonstrate a strong transaction history or explore quotes from multiple providers to leverage better rates.

Factors Influencing MDR

• Card Type: Various card types incur different MDRs. Credit cards tend to have higher rates compared to debit cards because of their associated risks and benefits.
• Transaction Method: MDR is significantly impacted by the method through which a transaction gets processed. For instance, card-present transactions (where the physical card is tapped, swiped, or inserted) tend to have lower rates compared to card-not-present transactions, such as online or phone transactions.
• Industry Type: The nature of the business plays a big role in the determination of MDR. High-risk businesses such as those involved in online casinos, adult entertainment, etc. are charged more MDR because of the increased likelihood of chargebacks or fraud.
• Merchant Category Code (MCC): Different businesses are categorized differently based on their nature, reflecting the perceived risk and costs associated with each category.
• Average Ticket Size: Smaller transactions tend to incur higher MDR percentages while larger transactions may incur lower MDR percentages. This is because the fixed processing costs get spread across the transaction amount.

How Merchants Can Optimize MDR?

• Merchants must compare different offerings from different payment processing when it comes to choosing the best credit card merchant account. Furthermore, they should assess not only the merchant discount rate but also service reliability, additional fees, and customer support.
• Merchants should carefully analyze and interpret the risk profile associated with their industry before getting into negotiations to optimize MDR. A lower or average risk profile may result in reduced merchant discount rates.
• Merchants should focus on leveraging proven and emerging technologies that minimize the risk of fraud and chargebacks to optimize MDR.
• The focus should always be on encouraging in-person (card-present) transactions to benefit from lower MDRs associated with card-present transactions.
• High transaction volumes should be used as a powerful leverage to negotiate volume-based discounts. Generally, payment processors are more than happy to offer favorable MDRs to merchants holding a credit card merchant account for a commitment to a certain transaction volume.

What pricing model does WebPays.com offer for a credit card merchant account?

WebPays.com offers a fair and transparent interchange pricing model, charging merchants for transactions separately to make sure there are no extra or hidden expenses. We do understand, just like you that interchange fees are inevitable but we do assist you to leverage them so your business can grow exponentially over time.

Our different credit card merchant account models allow you to retain a larger portion of the transaction amount. Over a significant transaction volume and time, these savings can greatly accumulate to positively influence the overall profitability of your business. For instance, you can reinvest these additional (saved) funds into different areas, such as expansion, marketing, or improving customer experience, resulting in overall business growth. Furthermore, attractive MDRs offered by WebPays can directly impact the bottom line and success trajectory of your business, facilitating sustainability and growth over time.

As your payments partner, WebPays will empower your business at every step of the journey with the insights, expertise, and transparency required to help your business save more money and make data-driven decisions. For more information, please feel free to extend your reach to us to apply for a credit card merchant account today.