How to Calculate and Reduce Your Merchant Discount Rate (MDR) in Singapore [2025]

What Is the Merchant Discount Rate (MDR)?

Every time a customer pays you with a credit or debit card, a small portion of that sale doesn’t make it to your bank account. That’s because of the merchant discount rate (MDR)—a fee that quietly cuts into your revenue with every transaction. 

In this guide, we’ll break down what the merchant discount rate really is, who earns it, how it’s calculated, and how you can reduce or even offset it to keep more of what you earn.

 

Breakdown of Merchant Discount Rate Components

The merchant discount rate is not a single fee—it’s a bundle that covers the cost of card payment processing.

Interchange Fees – Paid to Card-Issuing Banks

This fee is collected by the bank that issued your customer’s credit or debit card. It compensates the issuer for handling the transaction, covering:

• Fraud and chargeback risks

• Transaction processing infrastructure

• Customer rewards programs

Rates vary depending on your industry (e.g. high-risk vs. low-risk), payment method (e.g. card-present vs. online), and card type (e.g. consumer vs. premium).

Assessment Fees – Charged by Card Networks

This is the fee collected by the card networks themselves — such as Visa, Mastercard, American Express, or Discover— to maintain their global infrastructure and ensure secure, seamless payment processing.

It’s typically a small percentage of the total transaction value, but adds up quickly across high volumes.

Processor Markup – Payment Processor’s Share

This is what your payment processor earns for facilitating the transaction. It can be:

• A flat fee per transaction

• A percentage of the sale

• Or a combination of both

This is often the most negotiable part of the MDR — which means it’s also your biggest opportunity to save.

 

How to Calculate Your Merchant Discount Rate (MDR)

You can calculate the merchant discount rate using this formula:
MDR = Interchange Fee + Assessment Fee + Processor Markup

For example, Let’s say a café sells a cup of coffee for $6, and the customer pays using a Mastercard debit card via contactless payment. Here's how the MDR might break down:

• Interchange Fee: 0.80% + $0.05

• Assessment Fee (Mastercard): 0.13%

• Processor Markup: 0.40% + $0.10

MDR Calculation:

• Interchange: (0.80% of $6) + $0.05 = $0.048 + $0.05 = $0.098

• Assessment: 0.13% of $6 = $0.0078

• Markup: (0.40% of $6) + $0.10 = $0.024 + $0.10 = $0.124

Total Fees (MDR):

$0.098 + $0.0078 + $0.124 = $0.2298

So the total MDR on this $6 transaction is approximately 3.83%, or $0.23 in fees.
That means the café receives $5.77 in its merchant bank account.

 

How to Reduce Your MDR Costs in Singapore

Negotiate with Your Payment Processor

Many business owners don’t realize that MDR rates are often negotiable. If your business processes a high volume of transactions or maintains a long-term relationship with a processor, you’re in a strong position to request better terms.

Here’s how to strengthen your negotiating power:

• Benchmark competitors’ rates to understand what’s reasonable in your industry.

• Highlight your monthly transaction volume and business stability.

• Ask about volume-based discounts or custom pricing tiers.

Pro tip: Some regions (like the EU) regulate interchange fees. While Singapore doesn’t currently cap MDRs, staying informed about policy trends can help you plan ahead.

 

Optimize Your Transaction Processing

Chargebacks not only cost you money—they can increase your MDR over time. Payment processors view businesses with frequent disputes as higher risk, which may lead to higher fees.

To reduce chargebacks:

• Implement robust card verification (e.g. CVV checks, 3DSecure)

• Train staff to follow consistent transaction procedures

• Use real-time fraud detection tools

Investing in smoother, more secure payment flows protects your business and enhances your negotiating leverage with processors.

 

Encourage Customers to Pay with Cash

While digital convenience is essential, encouraging cash payments—when done correctly—can meaningfully reduce your overall MDR.

Ideas to promote cash usage:

• Offer a small discount for cash (e.g. $0.10 off)

• Introduce a stamp card loyalty program redeemable only with cash

• Educate regulars about how much card fees eat into margins

Always be transparent and give customers the freedom to choose. Avoid practices that may come across as coercive or discriminatory against card users.

 

Explore Lower-Cost Digital Payment Options

Singapore’s consumers are highly adaptive to digital payments, which gives merchants flexibility. Alternative payment methods like PayNow, GrabPay, and FavePay often charge lower transaction fees than Visa, Mastercard, or Amex.

Before integrating a new payment method:

• Compare transaction fee structures

• Assess user adoption in your customer demographic

• Ensure POS system compatibility

Choosing the right mix of digital payment solutions can significantly lower your blended MDR over time.

 

Switch Payment Processors If Needed

If your current provider charges above-market rates or offers limited flexibility, don’t hesitate to shop around. Many processors in Singapore offer:

• Transparent, competitive pricing

• No lock-in contracts

• Better support or integrations with your POS or online store

Switching providers may seem daunting, but the long-term savings often outweigh the short-term administrative effort.

 

Compare Top Payment Gateway Options in Singapore

Choosing the right payment gateway provider is crucial for businesses in Singapore looking to streamline transactions, control costs, and improve customer experience. Each provider offers different fee structures, such as:

• Flat-rate pricing: A single fixed percentage per transaction

• Tiered pricing: Rates vary based on card type and risk level

• Interchange-plus pricing: Transparent pricing with base card network fees plus a markup

To maximise savings, it's important to match the pricing model with your business profile—such as average transaction size, monthly volume, and sales channels (e.g. in-store vs. online).

When comparing payment gateways, consider key factors beyond just fees:

• Transaction and settlement speed

• Monthly or hidden costs

• Contract flexibility

• Currency support and cross-border capabilities

• Integration with your eCommerce platform or POS system

• Fraud prevention and security features

Many third-party review sites and fintech comparison platforms provide up-to-date comparisons to help you make an informed decision.

 

Top 7 Payment Gateway Providers in Singapore (2025)

Here are seven leading payment gateways used by businesses across Singapore:

Airwallex – Competitive cross-border rates and multi-currency support

PayPal – Widely trusted by consumers, strong buyer protection

Stripe – Developer-friendly with robust APIs and global scalability

Adyen – Enterprise-grade gateway with unified commerce support

Shopify Payments – Seamless integration for Shopify store owners

Opn Payments – Formerly Omise; known for regional coverage and ease of use

Eway – Offers flexible plans and strong local support

Read more :Which Is The Best Payment Gateway in Singapore [2025]

 

Streamline Payments and Boost Your Bottom Line

Managing restaurant MDRs is crucial for profitability in Singapore. By optimizing transaction processing and exploring various payment gateways, you can significantly reduce costs. See how eats365's integrated payment solutions and seamless online ordering system can maximize your savings and free you to focus on growth. Contact Eats365 today to learn more!

 

FAQs on Merchant Discount Rate for Singapore Restaurants

1. What is the Merchant Discount Rate (MDR)?

The Merchant Discount Rate (MDR) is the fee a business pays every time a customer uses a credit or debit card. It’s a percentage of the transaction amount and is shared among the card-issuing bank, the card network (like Visa or Mastercard), and your payment processor.

 

2. What fees are included in the MDR?

The MDR is made up of three main components:

• Interchange Fee – Paid to the customer’s bank for transaction processing and fraud risk

• Assessment Fee – Charged by card networks (e.g., Visa, Mastercard)

• Processor Markup – The fee your payment service provider earns

 

3. How do I calculate my MDR on a transaction?

Use this formula:
MDR = Interchange Fee + Assessment Fee + Processor Markup

Example:
For a $6 transaction using a Mastercard debit card:

• Interchange: 0.80% + $0.05

• Assessment: 0.13%

• Markup: 0.40% + $0.10

➡ Total fee: ~$0.23
➡ Net amount received by the merchant: $5.77

 

4. How can I reduce MDR costs in Singapore?

To lower your MDR:

• Negotiate with your payment processor for better rates

• Minimize chargebacks by improving fraud prevention and verification

• Encourage cash payments through small discounts or loyalty perks

• Adopt lower-fee digital payments like PayNow or GrabPay

• Compare processors and switch if you find better terms

 

5. What should I look for when comparing payment gateways in Singapore?

Key factors to evaluate include:

• Pricing model (flat-rate, tiered, or interchange-plus)

• Transaction and settlement speed

• Currency support and cross-border capabilities

• Platform integration (e.g., Shopify, POS systems)

• Fraud protection and chargeback handling

Top providers in Singapore include Airwallex, Stripe, PayPal, Adyen, Shopify Payments, Opn Payments, and Eway.