Merchant Discount Rate (MDR)

What is Merchant Discount Rate (MDR)?

The Merchant Discount Rate (MDR) is the fee a merchant pays to a payment processor or financing provider for each transaction handled through their platform. In B2B financing, this is typically expressed as a percentage of the total transaction amount and is the primary cost merchants pay in exchange for offering flexible payment terms to their customers.

How MDR Works in B2B Financing

When a buyer uses financing at checkout, the merchant receives the full purchase amount (minus the MDR) within a short settlement period — typically 48 hours. The MDR covers the financing provider's costs of extending credit, managing risk, and handling collections. In return, the merchant gets immediate payment and transfers all lending risk to the provider.

Evaluating the Cost vs. Benefit

While the MDR represents a direct cost to the merchant, it should be weighed against the benefits: higher conversion rates, significantly larger average order values, improved customer retention, and eliminated accounts receivable management. For most merchants, the revenue gains from offering financing far exceed the MDR cost.

Key Takeaways

• MDR is the transaction fee merchants pay for financing services
• It's expressed as a percentage of each financed transaction
• Merchants receive payment quickly in exchange for the fee
• The revenue gains from financing typically far outweigh MDR costs