Gateway Fees and Commercial Models

The merchant discount rate, usually shortened to MDR, is the main fee a merchant pays on each card transaction, expressed as a percentage of the transaction value. In India, a typical MDR for a domestic Visa or Mastercard credit card is 1.8 to 2.5 percent, while a RuPay debit card or a UPI payment often carries a much lower fee or no MDR at all under current regulation. On a 10,000 rupee credit card order at 2 percent MDR, the merchant pays 200 rupees, and the fee is split between the issuing bank as interchange, the card network as a scheme fee, and the acquirer and gateway as their margin. The merchant never sees the split on the customer receipt, but the settlement report shows the total deduction and the net amount credited. Per transaction fees, setup fees and monthly charges sit on top of the percentage rate, and they matter most for low value or low volume merchants. A gateway may charge a flat fee of 3 rupees per transaction, a setup fee of 10,000 rupees, an annual maintenance fee of 12,000 rupees, and a monthly minimum of 5,000 rupees. A merchant selling 100 rupee digital goods would lose 5 rupees to a 2 percent MDR plus 3 rupees in flat fees, which is 8 percent of the order value, while a merchant selling 50,000 rupee appliances would barely notice the flat fee. Some gateways waive the setup fee for high volume merchants, and some offer a blended rate, which is one percentage for all cards, versus an interchange plus model. The analyst must model the total cost, not just the headline percentage. Other charges hide in the detail, and a careful analyst reads the full price list before recommending a vendor. Refund fees, chargeback fees, international card surcharges, currency conversion markups, and fees for failed transactions can add up quickly. A chargeback fee of 500 rupees per dispute, plus the loss of the goods and the transaction amount, can turn a 2,000 rupee order into a 2,500 rupee loss. An international card may carry a 3.5 percent MDR plus a 2 percent currency conversion fee, so a 20,000 rupee order from a foreign customer costs 1,100 rupees in fees. The contract may also include a reserve, where the aggregator holds 5 percent of settlements for 90 days against future refunds and chargebacks, which affects the merchant cash flow even though the money is eventually released. A worked comparison shows how the analyst evaluates options. BrightKart processes 2 crore rupees per month, with an average order of 2,500 rupees and 8,000 transactions. Gateway A charges 1.9 percent MDR plus 3 rupees per transaction, with no setup fee, which costs 380,000 rupees plus 24,000 rupees, a total of 404,000 rupees per month. Gateway B charges 1.7 percent MDR plus 5 rupees per transaction, with a 15,000 rupee monthly fee, which costs 340,000 rupees plus 40,000 rupees plus 15,000 rupees, a total of 395,000 rupees per month. Gateway B is cheaper by 9,000 rupees per month, but only if its approval rate matches Gateway A, because a 1 percent drop in approvals on 2 crore rupees of sales loses 200,000 rupees of revenue. The analyst therefore weighs fees, approval rates, settlement speed and support quality together. The final recommendation is a short business case, not just a price table. It states the merchant volume and mix, the total monthly cost for each gateway, the expected approval rate from a pilot or reference customer, the settlement timing and its cash flow effect, and the exit terms, such as contract length, notice period and data portability for tokens. For BrightKart, the analyst might recommend Gateway B for the main store, with a three month pilot, a service level agreement for 99.9 percent uptime, and a clause that token data can be transferred if the merchant switches providers. The document also notes the negotiation points, such as a lower MDR after six months if volume exceeds 3 crore rupees, and a waiver of the monthly fee in the first quarter. A good commercial evaluation protects the merchant margin and keeps the gateway accountable after go live.