The merchant discount rate is the percentage an acquirer deducts from a card transaction before settling the rest to you. It is quoted as one number, and it is three numbers stacked. Understanding which of the three is negotiable is the difference between a productive pricing conversation and a year of paying for something the provider does not control anyway.
The three components
Interchange goes from the acquirer to the bank that issued the customer's card. The acquirer collects it and passes it on. It is set by the card scheme according to published tables, it varies by card type, transaction type and geography, and no acquirer can discount it because it is not theirs. In the EEA and the UK, consumer card interchange for domestic and intra-regional transactions sits under regulated caps, while commercial cards and cards issued outside the region generally do not. That single distinction explains most of the variation in what a deposit costs. The detail is in our piece on who takes a cut of every card payment.
Scheme fees go to Visa or Mastercard for running the network. They are numerous, small, revised periodically, and largely invisible under blended pricing. The acquirer's markup is the third piece and the only one genuinely up for negotiation. When a provider offers to cut your rate, that is the part being cut.
Everything outside the quoted rate
The percentage covers a subset of what leaves your settlement. Here is where the rest hides.
| Charge | Basis | Why it matters for trading firms |
|---|---|---|
| Fixed fee per transaction | Flat amount on every authorisation | Punishing on small deposits, negligible on large ones |
| Currency conversion margin | Spread on the FX rate applied at settlement | Often larger than the entire MDR when clients pay in many currencies |
| Authentication and fraud tools | Per authentication or per screened transaction | Scales with attempts, including the declined ones |
| Chargeback and retrieval fees | Flat per case, win or lose | A dispute costs the fee plus the disputed amount plus staff time |
| Refund handling | Per refund, sometimes with the original MDR not returned | Refunding a deposit can cost twice |
| Monthly minimum and platform fees | Fixed | Dominates the effective rate for a route with low volume |
| Payout and settlement fees | Per settlement or per payout file | Frequent settlement is convenient and priced accordingly |
Then there is the cost that never appears on an invoice at all: money withheld under a reserve clause is your capital sitting somewhere else, and for a growing firm it can outweigh every line in that table. The arithmetic is set out in how rolling reserves trap cash.
Blended against itemised
Blended pricing gives one percentage regardless of card type. It is easy to forecast and it is where most small merchants start. The catch is that your costs move with your customer mix, and under a blended rate you cannot see it. Win a cohort of clients paying with premium or commercial cards, or with cards issued outside your region, and the acquirer's real cost rises while your price does not. The acquirer notices. You find out at the next repricing, with no data to argue from.
Interchange plus plus separates the three components on the statement. Your invoice becomes less predictable month to month and far more informative, because a rise is attributable. For a trading firm with meaningful volume this is close to a requirement, since deposit sizes and card origins vary enormously and the mix drives the number.
Rates, caps and fee schedules differ by acquirer, region and merchant category, and they change. Nothing here is a quoted price. The only reliable figure is the effective rate you calculate from your own settlement reports.
Calculating the number that matters
Take one full settlement month. Sum every deduction: percentage fees, fixed fees, FX margin, authentication charges, chargeback and refund fees, monthly minimums, gateway and payout charges. Divide by the volume that actually settled. That is your effective rate, and it is habitually well above the headline.
Then cut it by segment: country of the issuing card, card type, deposit size band, and provider. This is where decisions live. A market that looks unprofitable often turns out to be one card type or one route, and the fix is routing rather than exit. It also lets you set a sensible minimum deposit, because below a certain size the fixed fee makes a card deposit uneconomic and a different method should be offered instead.
Approval rate belongs in the same view. A cheap route that declines a large share of attempts costs more than an expensive route that approves them, since the alternative to an approved deposit is usually no deposit at all. Cost per successful deposit, not cost per transaction, is the metric that should drive routing decisions inside a multi-provider setup.
What to ask for in the contract
Ask for the complete fee schedule as a table, not as prose in an appendix. Ask which fees apply to declined transactions and to refunds, since both are common answers people assume are zero. Ask whether the MDR is returned on a refund. Ask how FX is priced and against which reference rate, because that margin is frequently the largest single cost for a firm collecting in several currencies. Ask what triggers a repricing and how much notice you get.
And read the pricing next to the underwriting terms rather than separately. A lower markup paired with a longer reserve and a wider termination clause is not a better deal, it is a different risk profile, and for a firm in a category treated as high risk the terms usually cost more than the basis points do.
"Nobody was ever hurt by the headline rate. They were hurt by the FX margin, the fixed fee on small deposits and a chargeback charge they never asked about."
— Roman Onta, Executive Director, SINGUARD
Key Takeaways
- MDR is interchange plus scheme fees plus acquirer markup, and only the markup is negotiable.
- Fixed fees, FX margin, authentication, disputes and minimums sit outside the quote and often exceed it.
- Itemised pricing makes cost changes attributable; blended pricing hides a shifting card mix until repricing.
- Judge routes on cost per successful deposit by country and card type, calculated from your own settlement data.
Frequently Asked Questions
What does the merchant discount rate actually include?
Three components. Interchange, which the acquirer pays to the card issuer and cannot change. Scheme fees, which go to Visa or Mastercard for use of the network. And the acquirer's own markup, which is the only part that is genuinely negotiable. Everything else on the invoice, such as gateway fees, authentication fees, chargeback fees and currency conversion margin, usually sits outside the quoted rate.
Is interchange plus plus better than blended pricing?
Interchange plus plus shows interchange, scheme fees and the acquirer markup as separate lines, so you can see what changed when your costs move. Blended pricing gives one percentage for everything, which is simpler to forecast but hides whether a rise came from your card mix or from the provider. Most firms with meaningful volume are better off on the itemised model, because it makes the provider's margin visible and comparable.
How do I work out my real cost per card deposit?
Take total fees deducted over a full settlement month, including fixed per transaction charges, currency conversion margin, chargeback and refund fees and any monthly minimums, and divide by the total volume that actually settled. Then repeat the calculation segmented by country and card type. The blended effective rate is usually noticeably higher than the headline percentage, and the segmented view shows which markets are carrying the cost.