Merchant discount rate: Definition and average rate

Every time a customer pays you with a credit or debit card, a small portion of that sale doesn’t make it to your bank account. That’s because of the merchant discount rate (MDR)—a fee that quietly cuts into your revenue with every transaction. 

In this guide, we’ll break down what the merchant discount rate really is, who earns it, how it’s calculated, and how you can reduce or even offset it to keep more of what you earn.

What is a merchant discount rate (MDR)?

The merchant discount rate (MDR) is the total fee you pay every time a customer pays you with a credit or debit card. The merchant discount rate can range from 1% to 3%. 

Let’s say a customer buys a $100 product from your store using a credit card or debit card. You don’t receive the full $100. Instead, you might get $97 to $99, depending on your MDR.

What are the components of the merchant discount rate?

The merchant discount rate is not a single fee—it’s a bundle that covers the cost of card payment processing.

• Interchange fees: This is paid to a card issuer (customer’s bank). It covers things like fraud risk, processing costs, and even those credit card rewards programs. The exact rate changes based on your industry (high-risk or low-risk), how the payment is made (in-person or online), and the type of card used (consumer or premium).
• Assessment fees (card brand fee): This one goes to the card brand—Visa, Mastercard, Amex, or Discover. It’s usually a small percentage of the sale and helps fund the payment network.
• Processor’s markup: This is the amount your payment processor earns. It could be a flat fee per debit or credit card transaction, a percentage, or both.

How to calculate the merchant discount rate (MDR)

You can calculate the merchant discount rate using this formula: MDR = Interchange + Assessment + Markup.

For example, a merchant sells a violin for $100, and your customer pays in person using a Visa Credit CPS card. Here's the breakdown of the transaction amount's MDR:

• Interchange rate: 1.80% + $0.001
• Assessment fees: 0.22% + $0.02
• Processor’s markup: 0.50% + $0.25

Add them up, and the total MDR is 2.52% + $0.271. That means a merchant pay $2.791 in fees, and receives $97.209 in their merchant bank account. 

You can use Helcim pricing calculator to calculate the merchant discount rate for each card brand and transaction type.

What is the average merchant discount rate?

According to Helcim data, the average merchant discount rate is 2.49% + $0.25 and 1.93% + $0.08 per online and in-person transaction respectively.

The merchant discount rate can vary with every sale because interchange fees aren’t fixed. They change because:

• Some industries, like Tobacco, are considered high-risk merchants and usually pay higher payment processing fees.
• In-person payments are cheaper than online payments because it’s easier to verify the cardholder’s identity when the card is physically present.
• Debit cards cost less to process because they don’t offer rewards and the funds are pulled directly from the customer’s bank account—so there’s no credit risk for the bank.

To avoid fluctuating rates, some processors use a flat rate pricing model—like Stripe at 2.9% + 30¢ per transaction. In contrast, Helcim uses an interchange-plus model, Interchange + 0.50% + 25¢, which passes you the true cost of each transaction. On average, merchants save 25% with Helcim.

What is the lowest merchant discount rate?

The lowest merchant discount rates for United States businesses:

The lowest merchant discount rates for Canadian businesses:

How to avoid merchant discount rates

You can’t fully escape MDR charges if you accept credit and debit cards—but you can pass it to your customers:

Manually add a surcharge to the final bill: Credit card surcharging allows you to recover credit card fees by adding a small charge to your customer’s bill. You can enter it manually as a separate line item during checkout. But there are rules:

• You can only apply it to credit cards, not debit or prepaid cards
• It must be clearly disclosed before the transaction
• It’s not allowed everywhere

Use Helcim Fee Saver: Helcim Fee Saver automatically adds a surcharge when customers choose to pay by credit card instead of debit cards or ACH/EFT payments—helping you pass merchant discount rates to your customers.

Where surcharges are allowed?

• In the U.S., surcharges are legal in most states—except Massachusetts, Connecticut, and Puerto Rico. In Colorado, merchants are limited to a maximum surcharge of 2.0% of the total sale.
• In Canada, credit card surcharges are also permitted in most provinces—except Quebec, where consumer protection laws prohibit it.

How to lower your merchant discount rate

If you are in a region where surcharges aren't allowed, you can still lower your merchant discount rate. Here's how:

1. Choose a processor with transparent pricing: Helcim Interchange-plus pricing passes you the true MDR of each transaction—unlike flat-rate or tiered pricing model. Below are how much each industry saves on merchant discount rates when they process payments with Helcim.

2. Negotiate the processor’s markup: While interchange and assessment fees are non-negotiable, your processor’s margin isn’t. If you process a high volume of payments or have steady sales, you’ve got leverage—don’t be afraid to ask for a better rate. If you process payments with Helcim, the merchant discount rates will automatically be reduced as you process more volume.

3. Encourage lower-cost payment methods: Debit cards and ACH payments (0.5%) cost less to process than credit card payments (2.5% to 3%). You can encourage customers by offering discounts for debit or ACH payments. Learn how to set up ACH payments.

4. Accept more payments in person: In-person transactions come with lower chargeback and payment fraud risk, leading to lower interchange fees. If you sell products with tight profit margins, consider offering them for in-store purchase only. It encourages foot traffic—and helps you save on merchant discount rates at the same time.

5. Avoid hidden fees: Some processors sneak in fees for PCI compliance, statements, or monthly account access fees in your merchant statements. These don’t show up as the merchant discount rate but raise your overall cost. Look for a payment service provider that keeps things clean and fee-free.

Save 25% in merchant discount rate with Helcim

Most processors don’t show you what you’re really paying.  At Helcim, you only pay the actual interchange fee set by the card networks, plus a transparent margin: Interchange + 0.50% + 25¢ per transaction.

Helcim merchants save an average of 25% compared to other processors. You can sign up for a free Helcim merchant account with no monthly fees, no setup fees, and no hidden charges.

You also get powerful tools to help you accept payments anywhere:

• Online invoicing software
• Virtual terminal
• Online storefront builder
• Recurring payments
• Hosted payment pages

Already locked into a contract with high MDR fees? Helcim will cover up to $500 in cancellation or equipment fees when you make the switch. So don't wait any longer! Switch to Helcim today.

Break up with bad rates.

Feeling stuck with your provider? We'll waive $500 of your processing fees when you switch to Helcim.

Learn more

FAQ

Who earns the merchant discount rate?

The MDR is split between three main players: the issuing bank (via interchange fees), the card network (via assessment fees), and the payment processing companies (via their markup). Each party takes a cut for facilitating the business transaction. So the entire rate doesn't go to one provider—it’s shared.

How can I negotiate a lower merchant discount rate?

You can’t negotiate interchange or assessment fees, but you can negotiate the processor’s markup. If your business processes high volume or has consistent sales, use that as leverage. Also, choosing a provider with interchange-plus pricing makes it easier to see—and lower—your true cost.

Are there any hidden fees within the merchant discount rate?

There shouldn't be—but some providers bundle hidden fees into the MDR or add them separately to your statement. These can include statement fees, PCI compliance charges, or monthly service fees. Always ask for a breakdown of costs or choose a processor that offers transparent pricing.

What factors determine the merchant discount rate?

Your MDR depends on your industry, how you accept payments, and the type of card used. High-risk industries, and electronic or digital payments tend to cost more. Debit card transactions are usually cheaper than rewards or business credit cards because they carry less risk for the bank.