Payment processing is the heartbeat of any modern Australian business. As cash transactions continue to dwindle and tap-and-go becomes the norm, the Merchant Discount Rate (MDR) has shifted from backroom jargon to a key line item for business owners. Whether you run a bustling café in Melbourne or an e-commerce startup in Brisbane, understanding how MDR works—and how recent 2025 policy changes might affect you—can mean the difference between healthy profits and shrinking margins.
What is Merchant Discount Rate and Why Does It Matter?
The Merchant Discount Rate is the percentage fee that businesses pay to their payment processor or acquiring bank every time a customer uses a debit or credit card. This fee covers the cost of processing the transaction, including payments to card networks (like Visa or Mastercard), the acquiring bank, and sometimes the payment terminal provider.
For example, if you process a $100 sale and your MDR is 1.2%, you’ll pay $1.20 in fees. While that may sound trivial, these costs add up quickly—especially for businesses with high card transaction volumes or tight margins.
- Typical MDRs in 2025: For small-to-medium businesses, MDRs in Australia generally range from 0.8% to 1.8% for debit cards, and 1.3% to 2.5% for credit cards. Premium and corporate cards can attract even higher rates.
- Who sets the MDR? Your acquiring bank or payment processor sets the rate, which is influenced by your industry, sales volume, transaction size, and card mix (debit vs. credit).
- Why is MDR rising in focus? With surcharging regulations tightening and more businesses scrutinising costs, MDR is now a headline expense, not just an afterthought.
2025 Policy Changes: What’s New for Australian Merchants?
This year, the Australian Payments Network and Reserve Bank of Australia (RBA) have rolled out several important changes affecting MDR and payment processing:
- Surcharging Rules Refined: The RBA reaffirmed that merchants can only surcharge customers up to the actual cost of acceptance (i.e., the MDR), with new audit mechanisms to enforce compliance. Excessive surcharging can lead to hefty fines.
- Least-Cost Routing (LCR) Expansion: In 2025, LCR is now mandated for all merchant payment terminals, not just for high-volume retailers. This means businesses can route contactless debit card payments through the cheapest network (often eftpos) to minimise fees.
- Transparent Fee Disclosure: Acquirers must now provide clearer breakdowns of MDR components—interchange, scheme fees, and acquirer margin—empowering merchants to compare and negotiate more effectively.
For instance, a Sydney bakery owner, previously paying 1.5% MDR on all tap-and-go transactions, now leverages LCR to route eligible debit payments via eftpos, dropping the fee to just 0.7%. This translates to thousands in annual savings—money that can be reinvested into the business.
How to Take Control of Your MDR Costs
With MDR under the spotlight, smart businesses are getting proactive about their payment strategy. Here are actionable steps to keep your costs in check:
- Review Your Merchant Statements: Don’t just look at the blended rate—ask your provider for an itemised breakdown. Identify which card types are costing you most.
- Negotiate with Your Acquirer: Armed with data, you’re in a stronger position to request a better deal, especially if your sales volume has grown or your transaction profile has shifted.
- Enable Least-Cost Routing: Ensure your terminal and online payment gateway are set up for LCR. This can be a game-changer for debit-heavy businesses.
- Educate Your Staff: Train your team to recognise card types and, where appropriate, encourage cost-effective payment methods (without breaching surcharging laws or customer trust).
- Communicate Clearly with Customers: If you surcharge, make sure it’s transparent and compliant. Hidden fees can erode trust and attract regulatory scrutiny.
Industry insiders predict that as competition heats up among acquirers in 2025, those who actively shop around and leverage new tech (like integrated POS and real-time MDR dashboards) will stay ahead of the curve.
The Bottom Line: MDR Is a Manageable Cost—If You Stay Informed
As digital payments cement their dominance in Australia’s retail landscape, MDR will continue to be a critical cost driver for businesses of all sizes. Staying on top of regulatory changes, understanding your fee structure, and making use of least-cost routing can protect your profit margins in 2025 and beyond.
Every dollar saved on MDR is a dollar that can be reinvested—whether it’s in staff, stock, or growth initiatives. Make it a regular habit to review, negotiate, and optimise your payment processes.
