Merchant Discount Rate (MDR) is the charge (rate) charged by the bank to the merchants for letting the merchants collect payments through swiping of credit and debit cards.
The merchant discount rate is expressed in percentage of the transaction amount.
The merchant needs to open an account with the bank.
The bank then provides the swipe machine. On swiping the cards, the money gets deposited in the account.
The merchant must agree to the rate before setting up his/her account.
RBI wants to encourage cashless transactions and so it as set upper limits for the MDR.
MDR for debit card transaction has been capped at 0.75% for transaction values up to Rs.2000 and at 1% for transaction values above Rs.2000.
