Merchant Discount Rate (MDR)

A fee paid by the acquiring bank to the issuing bank each time a payment card transaction is processed, representing the largest component of the merchant discount rate. Interchange fees are set by card networks (Visa, Mastercard) and vary by card type, merchant category, transaction method (card-present vs card-not-present), and jurisdiction.

The rate used to convert a single-period earnings or cash flow figure into an indication of value, calculated as the discount rate minus the expected long-term sustainable growth rate. The capitalisation rate is the reciprocal of the capitalisation multiple and is used in the capitalisation of earnings method for businesses with stable, predictable income streams.

The theoretical rate of return on an investment with zero default risk, used as the foundation for building discount rates in valuation. In practice, the yield on government bonds of a maturity matching the expected cash flow duration serves as a proxy — typically US Treasury bonds for USD-denominated valuations or UK gilts for GBP-denominated analyses.

A financial institution licensed by card networks (Visa, Mastercard) to process payment card transactions on behalf of merchants, also known as a merchant acquirer. The acquiring bank maintains the merchant's account, underwrites the merchant's credit risk, settles funds from card transactions, and ensures compliance with card network rules and PCI DSS security standards.

The percentage of customers or revenue lost over a given period. Customer churn measures the proportion of subscribers who cancel, while revenue churn accounts for the monetary impact of downgrades and cancellations.

A reduction applied to the value of an ownership interest to reflect the absence of a ready market for its sale. DLOM is commonly applied to interests in private companies where shares cannot be easily traded on a public exchange.

A financial institution licensed by card networks to issue payment cards (credit, debit, or prepaid) to consumers and businesses. The issuing bank extends credit or provides access to deposited funds, bears the cardholder's credit risk, and receives interchange fees on each transaction.

The end-to-end handling of electronic payment transactions from initiation through authorisation, clearing, and settlement. Payment processing involves multiple parties — merchants, payment gateways, acquiring banks, card networks, issuing banks, and payment processors — coordinating in real time to validate, authorise, and settle funds.

What is the weighted average cost of capital (WACC)?

WACC is the average cost of all capital sources (debt and equity) a company uses, weighted by their proportions — it is the minimum return the company should generate to satisfy all investors.

How do you select the appropriate discount rate for intangible asset valuations?

Discount rates for intangible assets should reflect the asset-specific risk profile, typically ranging from WACC for lower-risk assets like customer relationships to WACC plus a premium for higher-risk assets like in-process R&D.

What is the Relief from Royalty method?

The Relief from Royalty (RFR) method values an intangible asset by estimating the royalty payments a company avoids by owning the asset rather than licensing it from a third party.

What is a sensitivity analysis in intangible asset valuation?

Sensitivity analysis tests how changes in key assumptions (discount rate, growth rate, attrition rate, royalty rate) affect the intangible asset's fair value, identifying which inputs have the greatest impact.