Discount merchant account - You just get a merchant account at a quoted discount rate of 1.79% for your
Many businesses seek a merchant account to process credit card payments at an advertised low rate. However, it's a common surprise for merchants to find that their actual processing statements show many transactions were charged at a significantly higher rate than initially quoted. Understanding how these rates are applied and calculated is crucial to avoid unexpected costs.
What is a Merchant Account Discount Rate?
A discount rate is a fee applied to each transaction you process through your merchant account, calculated as a percentage of that transaction's dollar amount. While you might be quoted a specific "discount rate," it's important to understand that this often refers to the "Qualified Rate" – the lowest possible rate for ideal transactions.
Understanding Qualified, Mid-Qualified, and Non-Qualified Rates
When you apply for a credit card processing solution, the rate you're typically quoted is the "Qualified Rate." This rate is determined by first considering the InterBank Exchange rate set by card networks like Visa and Mastercard, which is consistent across all banks and processing companies. Banks and processors then add their own percentage to this fee, forming the Qualified Rate they charge merchants.
Why are Card-Not-Present Rates Higher?
For retail businesses with "card-present" sales, current Qualified Rates typically fall within a certain range. For "card-not-present" transactions, such as phone, mail, or internet orders, the rates are generally higher. This is because card-not-present transactions carry a greater risk of fraud, as the merchant cannot physically verify the card or cardholder.
When Do Surcharges Apply?
Beyond the Qualified Rate, certain risk factors can lead to additional percentage charges, known as "Mid-Qualified" and "Non-Qualified" surcharges. These surcharges are added on top of the standard Qualified Rate. Mid-Qualified surcharges typically range from an additional percentage, and Non-Qualified surcharges can add an even higher percentage to your transaction cost.
Understanding the circumstances that trigger these surcharges is key to managing your processing costs.
Mid-Qualified Transactions
Surcharges for Mid-Qualified transactions often apply in situations like:
- Phone, mail order, and internet transactions where the Address Verification Service (AVS) does not match the cardholder's address.
- Retail transactions where the merchant manually keys in the credit card information because the card is present but cannot be swiped, or keys in an order where the card is not present (e.g., a phone order).
Non-Qualified Transactions
Non-Qualified surcharges are typically levied in scenarios such as:
- Phone, mail order, or internet sales where a keyed-in transaction is not included in that day's batch of transactions. (Note: For internet processing, most gateways handle "batching" automatically, so this is less common for online sales.)
- Retail merchants who do not batch out their transactions daily.
- Transactions made using corporate, non-U.S., business, or government credit cards.
If a significant portion of your customers use corporate, government, or international cards, or reside outside the United States, negotiating the lowest possible Non-Qualified Discount Rate can be highly beneficial.
Other Factors Affecting Your Rate
Many other factors can influence the discount rate you'll be charged, making it a complex system to navigate. These include:
- High-Risk Merchants: Businesses deemed high-risk can expect higher discount rates across all transaction types.
- Premium Reward Cards: Transactions involving premium cards like Visa Signature Reward Cards and Mastercard World Cards often incur additional surcharges.
- Shipping Delays: A surcharge may be applied if a customer's order is not shipped within a specified timeframe, such as 24 hours.
Before committing to a merchant account, it's essential to thoroughly review the provider's complete criteria for evaluating discount rates for different sales. Always speak with your agent if you have any questions about specific charges.
Benefits of a Merchant Account
Getting a merchant account enables your business to accept credit card payments, which can significantly boost your sales volume. By offering customers the convenience of paying with credit instead of cash or checks, you make it easier for them to complete purchases, potentially leading to a rapid increase in sales as happy customers return with their cards in hand.
Ideally, a discount merchant account lets you provide these credit payment options at competitive rates. While there may be an application or setup fee, you might then pay a monthly fee for services including credit and debit card acceptance, e-check processing, and related features. However, it's crucial to be vigilant when shopping for a merchant account, as various hidden fees may not be prominently displayed. These charges could be buried in fine print or linked from a less obvious page. Always inquire about all potential costs upfront, such as online application fees, membership fees, and setup fees, if they are not clearly posted.
Frequently Asked Questions
What is a merchant account discount rate?
A discount rate is a fee charged on each transaction processed through your merchant account, calculated as a percentage of the transaction's dollar amount. This is one of the primary costs associated with accepting credit card payments.
Why are some transactions charged a higher rate than quoted?
The rate initially quoted to you is typically the "Qualified Rate" for ideal transactions. However, transactions can incur higher "Mid-Qualified" or "Non-Qualified" surcharges due to factors like card-not-present sales, address verification mismatches, manual entry, delayed batching, or the use of specific types of credit cards (e.g., corporate, international, or premium reward cards).
What causes Mid-Qualified and Non-Qualified surcharges?
Mid-Qualified surcharges often apply to card-not-present transactions without Address Verification Service (AVS) matches, or when a retail merchant manually keys in a transaction. Non-Qualified surcharges can occur if transactions are not batched daily, or if corporate, non-U.S., business, or government credit cards are used.