How much money reaches the merchant from a credit card swipe, and how does it get there? Here is the full breakdown..
Whenever you swipe a Visa, Mastercard, or RuPay credit card at a store, the merchant does not receive the full amount deducted from your account. A portion of this sum is distributed among the banks and the card network; this is known as the Merchant Discount Rate (MDR). While UPI payments currently do not attract this charge, the government is now considering introducing an MDR on business transactions exceeding ₹2,000. These rates are set to come into effect on October 15, 2026. If you purchase goods worth more than ₹2,000 and pay via UPI, an MDR of up to 0.4% will be deducted. Currently, this system applies to debit and credit card payments. Let us understand in detail how this entire system works and how the money is distributed among the various parties.
How the system works
When a customer swipes a Visa, Mastercard, or RuPay credit card, four parties are involved in the transaction. The first is the customer; the second is the issuing bank (the bank that issued the card to the customer, such as HDFC or SBI). The third party is the card network (Visa, Mastercard, or RuPay), and the fourth is the acquiring bank—the merchant's bank—which processes the payment and deposits the funds into the merchant's account.
Let’s understand this with an example...
Vivek goes shopping at Lulu Mall in Lucknow with his wife and children. He buys a toy for his child and some toiletries for his wife, and the shopkeeper hands him a bill for ₹3,000. To settle the bill, he takes out his credit card, swipes it, and enters his PIN. The money is then transferred to the merchant's account, but the shopkeeper receives only ₹2,940. The question arises: where did the remaining money go? This is where the MDR comes into play. The exact amount received is determined by the agreement between the merchant and the bank. Suppose an MDR of 2% is applicable; on a payment of ₹3,000, this amounts to ₹60, which is distributed among various parties. The funds go first to the issuing bank, then to the card network (such as Visa or Mastercard), followed by the merchant's bank, alongside other applicable charges. Finally, after the total MDR is deducted, a message flashes on the merchant's screen: "₹2,940 credited to your account." This is how the entire system operates; the money does not go to just a single entity.
According to a Moneycontrol report, if the MDR is 2%, the breakdown is as follows: the issuing bank receives 1.25%, the acquiring bank takes 0.25%, the card network gets 0.15%, the payment service provider receives 0.25%, and the remaining 0.10% goes towards POS/other services.
**Stakeholder** | **Share in MDR** | **Amount (out of ₹60)**
--- | --- | ---
Issuing Bank | 1.25% | ₹37.50
Acquiring Bank | 0.25% | ₹7.50
Card Network | 0.15% | ₹4.50
Payment Service Provider | 0.25% | ₹7.50
POS/Payment Gateway | 0.10% | ₹3.00
**Total** | **2%** | **₹60**
**Charges for UPI Merchants**
Under new NPCI rules, an MDR of up to 0.4% will apply to select merchant UPI transactions exceeding ₹2,000. This charge will be levied on the merchant rather than directly on the customer. For transactions of ₹75,000 or more, the MDR is capped at ₹300. Conversely, no MDR will apply to UPI payments up to ₹2,000, and P2P (person-to-person) payments will remain free. The new rule will primarily impact large business transactions.
Disclaimer: This content has been sourced and edited from TV9. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
