Merchant Discount Rate

Reviewed by Bhavana | Updated on Feb 01, 2023


What is a Merchant Discount Rate?

A merchant discount rate is the rate levied on debit and credit card transactions to a merchant for the payment processing services. Before accepting debit and credit cards as payment the merchant must set up this service and agree to the rate. The merchant discount rate is a price that merchants must take into consideration when calculating their company's overall costs.

Most retailers will expect to pay a fee of 1% to 3% for each transaction's payment processing. Usually, local merchants and e-commerce vendors will have different fees and service-level agreements. The payment processors have well-established systems and fee schedule arrangements in place to accommodate all forms of vendor payments.

Importance of Payment Processors

Processing infrastructures for payments help to support trade around the world. Financial technology helps to process payments more easily with many companies developing point-of-sale (POS) systems which also provide options for payment plans, loans, and credit lines. Payment processors are at the forefront of technological development in the processing of payments and their relationships with merchants are key to the trade infrastructure.

It can be complicated for merchants to have the fees and fee agreements involved in an account. Merchants have many manufacturers to choose from and these suppliers often offer different fee schedules. Merchants may expect to pay a deposit processing fee, as well as network and exchange fees to get funds from the customer's account. Merchant discount rates are typically higher for e-commerce due to the additional security costs.

Electronic payment networks provide clients with the option of paying from multiple sources. This is a profit to clients, and a dealer advantage. Many traders will require a minimum fee for using an electronic payment form. The minimum charge helps to support the merchant's payment of the discount rate.

Fee schedules for payment processing are most typically paid at a discount rate for retailers but some providers may levy a flat monthly fee. If an exchange provider with a bank is included in service contracts, then the retailer must pay to two providers for the transaction. If dealing with a bank only, the merchant typically has a bundled merchant discount rate for the transaction to be processed in full.

Related Terms

Recent Terms