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Understanding Merchant Account Discount Rates


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									                  Understanding Merchant Account Discount Rates

      Merchant Account Discount Rates are often one of the pesky irritants that
keep straining the relationship of merchant account holders with credit card
processors. Hurried through scrutinizing the details of your contract with a
merchant account provider, over eager business operators sign your applications
without understanding how discount rates work.

      This can lead to a nasty surprise for you at the end of your first billing
period. At the time of signing, the 1% to 3% discount rate offered by most
providers is of no consequence to the hasty business whose main concern at that
point is to be able to accept credit card payments in your establishments.

      Who reads the fine print anyway right? And there is a ton of fine print in the
average merchant account contract. If you want know how understanding
Merchant             Account              Discount             Rates           click

      Well, you should…

      When your account provider is taking a slice of every payment processed,
those discount rates really add up, and if you are a high volume business, shaving a
percentage point of your rates can translate into very significant savings.

      Add in not being aware of other risk-based add-on charges that can be added
to your discount rate and you start to realize why you must pay attention to this
necessary but pesky little fee.

      Lets take the process step by step starting from the time a credit purchase is
made by a consumer all the way up to the time payment is made by the provider to
better understand how discount rates work.

      When a card is presented to a merchant for payment, it is processed through
the merchant’s server which sends a request for payment approval to a payment
gateway (the credit card company network) which in turn sends a request for
confirmation to the bank with which the credit card account is tied to.

      The corresponding bank sends back a response which goes through the same
route ending up in the merchant’s web server.

      Once a favorable response is received then the credit card purchase ends
with receipts being signed and issued to the cardholder while funds are transferred
to the merchant account by the bank.

      The whole cycle completes in a matter of seconds.

      The funds transferred to the merchant account following funding payment
for the goods purchased by the merchant is always less discount rate. Many
business owners mistakenly believe that the discount rate charged by the
corresponding bank is fixed.

      The truth is, it can vary and risks play a great part in determining the final
discount fee to be deducted from the transaction.

                                      Qualified Rate

      What IS fixed at the time a merchant account is opened is only the minimum
Merchant Account Discount Rates known as a Qualified Rate which is on average
somewhere between 1% to 3% (depending on how your business fares with a risk
analysis done by your provider).

      The type of business the nature of the products and services you sell and the
industry are always taken account to assess your level of risk and corresponding
discount rate adjustments.

      For example, the average qualified rate for brick and mortar shop (retail
stores) can be from 1.70% to 1.85%; while those for online shops, phone and mail
order companies range from 2.25% to 2.49%. The rates for physical location shops
are lower because the risk of fraud perceived as lower since additional
identification is requested before the actual card is swiped.

      On the other hand, with online, phone, and mail order companies, the card is
not physically present for verification and information is merely ‘keyed-in”.

      The Qualified Rate is often misconstrued as the final Merchant Account
Discount Rate.
      This is not the case…

      The misconception perhaps can be rooted to some over-enthusiastic
merchant account salesmen intentionally or accidentally passing off the low
Qualified Rates as the Merchant Account Discount Rate being offered to entice
businesses to open merchant accounts while leaving the other discount add-ons
where they should be – as fine prints in their contract and application forms.

      The old bait and switch is unfortunately all to common in the competitive
credit card processing industry.

      Sales personnel often fail to mention the add-on discounts known as Mid
Qualified and Not Qualified.

                                   Mid Qualified Rates

      Mid Qualified Rates are additional surcharges that range from 0.75% to

      These surcharges are levied on merchant transactions where address
verification is never conducted such as phone and mail order transactions, and
online shop purchases.

      This may also include retail store transactions where the card was never
swiped (such as phoned-in orders).

                                  Non Qualified Rates

      Non Qualified Rates range from 1.5% to 2.00% and are levied on keyed-in
transactions that were not batched within 24 hours. It may include phone and mail
order transactions as well as transactions by some retail stores which were not
batched within the 24 hour requirement.

      This discount rate add-on fee is commonly also levied on transactions using
corporate, government, business, and non-U.S. credit cards.

      These surcharges are added on to the discount rate of your merchant account
to compensate mainly for the additional risks to the provider by such transactions.

      Discount rates are lower if the credit card is swiped than if card information
were merely keyed in. Keyed in transactions are generally riskier than swiped
transactions made in person since actual card verification can be made.

      On average, retail merchants can expect a discount rate of 1.79% – 2% while
online businesses are slapped with an average 2.3% or higher discount rate.

      To sum it all up, the Merchant Account Discount Rates are 3-tiered namely:

      1.     Qualified Rate – without surcharges and considered the lowest.
      2.     Mid Qualified Rate – the final discount rate is the sum of the
qualified rate plus the mid qualified rate adjustment.

      3.     Non Qualified – the final discount rate is the sum of the non qualified
rate plus the qualified rate.

      You should also be aware that some card transactions can be downgraded by
processors based on matching criteria.

      For example, if the Address Verification System result does not match your
records in the bank the processor may downgrade the transaction by adding in a

      Some processors automatically downgrade international cards and corporate
cards. In both of these instances you will pay a higher discount fee to the provider.
This can quickly erode your profits if not managed or understood.

      If you don’t have a merchant account and are considering opening one for
your business, make sure you read the ‘fine print’ carefully and understand how
the discount rates will impact your bottom line.

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