Merchant Discount Rates in Malaysia: What Every Business Owner Should Know

For any business in Malaysia, from a local café to a growing e-commerce brand, accepting digital payments is essential for success. But for every sale made with a credit card or e-wallet, a small portion of that revenue is deducted before it reaches your bank account. This is the Merchant Discount Rate (MDR).

While the MDR is a standard and necessary cost of participating in the digital economy, it shouldn’t be a mystery. For SMEs, where managing cash flow and protecting margins is critical, understanding this fee is vital. What exactly is it? Who gets paid? And why does it change from one transaction to the next?

This guide is designed to demystify the Merchant Discount Rate for Malaysian businesses. We will break down its components in simple terms, explain the factors that influence your rate, and show how partnering with the right payment gateway can turn a complex cost into a transparent and manageable part of your growth strategy.

Key Takeaways

• What It Is: The Merchant Discount Rate (MDR) is a fee a business pays for each electronic transaction, charged as a percentage of the total sale value.
• The Three Core Costs: MDR is not one fee, but a bundle of three: the Interchange Fee (paid to the customer’s bank, e.g., Maybank), the Card Scheme Fee (paid to Visa/Mastercard), and the Acquirer’s Markup (paid to your payment gateway).
• Rates Are Not Fixed: Your MDR can vary based on the type of card your customer uses (e.g., a premium credit card costs more to process), your industry’s risk profile, and your monthly transaction volume.
• The Value Proposition: While MDR is a cost, the benefits of accepting digital payments—increased sales, customer convenience, and enhanced security—far outweigh the expense in Malaysia’s digital-first market.
• Smart Cost Management: A modern payment gateway provides clear pricing and allows you to offer a mix of payment methods, including low-cost options like FPX and DuitNow, to manage your overall costs.

What is the Merchant Discount Rate (MDR)? A Clear Definition

The Merchant Discount Rate is the fee your business pays to securely and instantly process a customer’s card or e-wallet payment. It is almost always calculated as a percentage of each transaction’s value.

Business Example: A customer buys an item from your online store for RM100 and pays with their credit card. If your MDR is 2.5%, the fee for that transaction would be RM2.50. The remaining RM97.50 is the amount that will be settled into your business bank account.

This fee covers the entire ecosystem of banks and technology providers that work together to make a digital payment happen.

The 3 Core Components of MDR

The MDR you pay is a combination of three distinct fees that are bundled together.

1. The Interchange Fee (The Customer’s Bank Share)

This is the largest part of the MDR, typically making up 70-80% of the total cost. It’s a fee your payment gateway collects from you and pays to the bank that issued your customer’s card (e.g., Maybank, CIMB, RHB Bank).

• Purpose: It compensates the issuing bank for the risks it takes on (like fraud) and the costs of providing services to the consumer (like funding rewards programs and interest-free periods). This is why a premium rewards card has a higher interchange fee than a basic debit card.
• Who Sets It: These rates are set by the card networks (Visa, Mastercard) and are non-negotiable for individual businesses.

2. The Card Scheme Fee (The Network’s Share)

This is a much smaller fee paid directly to the card network itself (e.g., Visa, Mastercard, MyDebit).

• Purpose: This fee covers the cost of operating, maintaining, and securing their vast global and national payment networks.
• Who Sets It: This fee is also set by the card networks.

3. The Acquirer’s Markup (The Payment Gateway’s Share)

This is the fee charged by your direct payment partner, such as Razorpay Curlec.

• Purpose: This markup covers the gateway’s services, including their secure technology infrastructure, PCI DSS compliance, advanced fraud detection, customer support, and profit margin.
• Who Sets It: This fee is determined by your payment gateway. Modern gateways that process high volumes can often offer a more competitive markup.

Why Your MDR Varies: Key Factors for Malaysian Businesses

Your MDR is not a single, fixed rate. Several factors determine the final percentage you pay per transaction.

• Payment Method: A premium credit card with high rewards will have a higher interchange fee than a standard credit card or a debit card.
• Business Industry Risk: Industries with a higher historical rate of chargebacks (like travel or ticketing) are considered higher risk and may have a higher MDR. A physical retail store is generally lower risk.
• Transaction Volume: Businesses with a larger volume of monthly sales may be able to secure a more competitive acquirer’s markup.
• Transaction Type: Online transactions (“Card-Not-Present”) are typically seen as higher risk than in-person payments where the card is physically present, which can influence the rate.

Did You Know?

In Malaysia, you can significantly lower your average payment processing cost by offering local payment methods. FPX and DuitNow transactions bypass the traditional card network system. As a result, they don’t have a percentage-based MDR and instead usually have a much lower, fixed fee per transaction, making them highly cost-effective for businesses.

How a Payment Gateway Helps Malaysian SMEs Manage MDR

For an SME, trying to predict costs based on fluctuating interchange fees is nearly impossible. A unified payment gateway like Razorpay Curlec is designed to solve this complexity.

• Transparent, Blended Rates: We offer a simple, blended pricing model. This means you get one predictable rate for card transactions, making it easy to forecast your costs without worrying about what type of card your customer uses.
• Access to a Full Suite of Options: Our platform allows you to easily offer low-cost methods like FPX and DuitNow right alongside cards, giving your customers choice and giving you control over your costs.
• Unified and Clear Reporting: Our dashboard provides a single, consolidated view of all your transactions, earnings, and fees. You no longer need to spend hours deciphering complex bank statements to understand what you’re paying.

Ready to Optimise Your Payment Costs?

Stop guessing what you’re paying for payments. Get clarity, control, and competitive rates designed for Malaysian businesses.

Discover Razorpay Curlec‘s transparent pricing and see how our gateway can work for you.

Conclusion

The Merchant Discount Rate is a necessary cost of doing business in Malaysia’s digital economy. By understanding its components and the factors that influence it, you can move from passively accepting it to actively managing it. Partnering with a modern payment gateway is the most effective way to ensure you’re getting a transparent, competitive rate and an efficient system that supports your business’s growth.

Frequently Asked Questions (FAQs) for Malaysian Merchants

Why is the MDR for American Express sometimes different?

American Express operates a “closed-loop” system where it can act as the card issuer, the acquirer, and the network. This gives it more control over its fee structure, which can sometimes result in a different MDR compared to Visa or Mastercard.

Can I avoid MDR by only accepting cash?

While you can, a “cash-only” strategy in Malaysia will likely limit your sales potential. You risk losing customers who prefer the convenience and security of digital payments. The hidden costs of handling cash (security, transport, reconciliation time) can also be higher than the MDR.

What is the difference between MDR and a transaction fee?

MDR is a specific type of transaction fee, calculated as a percentage, that applies to card and e-wallet payments. “Transaction fee” is a broader term that can also refer to flat fees, like the small, fixed cost that might apply to an FPX or DuitNow transaction.