MDR, PSP Fee, Interchange Fee, and Other Payments Charges – Explained

7.-Explaining-different-payment-charges

There is nothing permanent about the way we do things, and the same holds true for payments. What has once started with the barter system has transformed into digital payment methods over time.

From local grocery stores to Large Format Retail (LFR) outlets in the malls, we can easily find a wide range of options to make digital payments. Whether it is QR codes, UPI, digital wallets, payment links, or payment gateway, digital payment is accepted everywhere.

In reality, we are living in the digital age where purchasing anything from a local store or an online shop is not solely dependent on cash. In terms of stats, India has achieved the top spot for real-time payment transactions in the world with the number standing at 25.5 bn, followed by China and South Korea.

Alongside, the Internet penetration rate in the country has grown manifolds in the last decade, from 10% in 2011 to 45% in 2021, says Statista.

While most of us do not pay any additional amount at the time of making digital payments, there is a cost involved at the merchant’s end. Whether you are a local seller or running an online business, you need to pay a certain fee to facilitate digital payments to your customers. This fee is largely known in terms of certain rates and fee components, such as MDR, PSP fee, and many others.

In this blog, we will explain various fees involved when you begin accepting digital payments for your business.

What is Merchant Discount Rate or MDR?

Merchant Discount Rate refers to the rate at which the merchants are charged for accepting payments made via credit cards, debit cards, net banking, and digital wallets. The merchants must agree to this rate defined by the payment service providers and set up the service before accepting digital payments.

MDR is usually around two to three percent of the transaction amount. For example, if a customer pays Rs. 10,000 via a credit card to a merchant while the MDR is 2%, then the merchant will be charged Rs. 200 to accept this payment.

As a business owner, you can negotiate with the payment service provider about agreeing on a particular MDR before accepting their services. For small and medium businesses, the MDR is nearly the same. However, you can ask for a lower rate based on the total transaction volume you expect to receive from your customers.

You should also know that MDR is the reason why many merchants insist the customers to pay online via UPI and not cards. There is no processing fee charged on UPI payments while a certain fee is charged while accepting card payments as per the corresponding MDR.

MDR for Paytm Payment Gateway

Payment Mode MDR
UPI  NA
Paytm wallet 1.99%
Debit card – Rupay 0%
Debit card – VISA & Mastercard 0.9% for the amount above Rs. 2,000; 0.4% for the amount less than Rs. 2,000
Net banking 1.99%
International PG 2.8%

What is a Payment Service Provider or PSP fee?

To understand what PSP fee is, consider this example.

You run an offline business selling clothing in your city. Now that the sales are growing, you get retail customers who want to pay you for the purchases via credit cards, debit cards, and other payment methods. Since you have only dealt in cash till now, you want to provide your customers with the facility to pay via other methods online via a website or app. For this, you first need a PSP or payment service provider.

A PSP is the payment enabler that acts as a connection between your business and customers. It helps you accept online payments via multiple payment modes like credit cards, debit cards, UPI, net banking, to name a few. Also, it is the PSP’s responsibility to ensure the security of every payment transaction held between you and your customers.

PSP fee is simply the fee charged by the PSPs to process digital payments for your business. It varies from one service provider to another.

What is an Interchange Fee?

Ever wondered how the payment is processed when a customer pays you by swiping a debit or credit card? Well, there are three sides or pillars that ensure successful payment processing:

  • An issuing bank that issues the credit card or debit card in use
  • An acquiring bank where the amount is to be transferred after the transaction
  • Issuing institutions involved like VISA and Mastercard

For every transaction, the funds get transferred from the issuing bank to the acquiring bank, while the process is facilitated by the issuing institution.

An interchange fee is an amount that the issuing institutions pay to the issuing bank after collecting the same amount from the acquiring bank. It is defined as the percentage of the total transaction amount along with a fixed charge.

You should also know that the involved issuing institutions are responsible for setting this fee and collecting it too. On an average, the interchange fee is around 2.00% for credit cards, while it is 0.30% for debit cards.

Importance of payment enablers or service providers in India

Payment service providers in India have helped in transforming the business ecosystem. They invest in the latest payment technologies to help both merchants and customers in accepting and making digital payments respectively.

Being at the forefront of technological advancements in the field of digital payments, these PSPs play an important role to develop the trade infrastructure. Different fees that they charge are only meant to support the digital payment cycle between merchants and customers.

Paytm is the largest payment enabler in India which ensures high success rates of digital payments. Also, it is the acquiring PSP, issuing PSP, and owns its payment gateway.

Some impressive numbers about the Paytm Payment Gateway that you can rely on are:

  • 400 million transactions per month
  • 99.99% uptime
  • 2500 transactions per second

If you are still on the fence to select the best payment enabler for your business, switch to Paytm payment gateway today!

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