The rates that merchants get charged to process bankcards are called Discount rates, Item fees, and Monthly statement fees.

Discount rates are typically broken down in several categories called Interchange. Although interchange may include 100%2B different rates that change yearly, usually an increase passed on by Visa, MasterCard, and Discover. However, most cases ISO’s (Independent Sales Organizations) charge these discount rates into what is called bucket rates to the merchant. These bucket rates include: Qualified, Mid- Qualified, and Non-Qualified rates.

Qualified rates are bankcards that are swiped with customer card present, and do not reflect any kind of reward credit cards such as: Flyer miles, Bonus cash, or any kind of Incentives for the cardholder. Qualified has the lowest discount rate that gets charged to the merchant. The reason for this is because there is a lower chance for the merchant to get a chargeback and less risk for both the merchant and Visa/MasterCard to absorb the cost of accepting a fraudulent bankcard. Qualified rates can range from 1.65%-1.95% (depending on type of business).
Mid-Qualified rates are bankcards that are not present or known as keyed-in transactions. For example: Phone orders or Cards that won’t swipe. Furthermore, Reward cards also fall into the mid-qualified category as well. In essence, Mid-Qualified has a higher discount rate that is charged to the merchant because of the keyed-in and reward bankcards. If a bankcard is not present it has a higher risk of being a fraudulent card because there is no way to verify card holder identity. Reward cards on the other hand, fall into the mid-qualified category because it is in fact the merchant that absorbs the cost of Visa/MasterCard’s ability to offer the incentives that are involved with a reward card. Mid-Qualified rates range from .85%-1.29% (depending on type of business) in addition to the Qualified rate.
Non-Qualified rates are Business, Corporate, and International bankcards. Non-Qualified has the highest discount rate that is ever charged to the merchant. There are several reasons why this is the case. The bankcards that fall in this category either have the highest limits or highest risks possible. Business and Corporate usually have the highest card limits and the processing company, upon approval, deposit the funds into the merchants account before the processing company itself has received the funds. International cards are the highest risk and require the most verification of all bankcards. Furthermore, more cases than not, the processing company has to calculate and withdraw the rate of exchange of what ever Countries’ currency to the U.S. dollar. The discount rate in the Non-qualified category is the same whether the bankcard is present (swiped) or not (keyed). Non-Qualified rates range from 1.12%-1.63% (depending on type of business) in addition to the Qualified rate.

Item fees are charged in addition to the discount rate. These fees are reflected every time a merchant receives a bankcard in which an approval is obtained or the merchant has to Settle (batch out) all the transactions of that day. In order for an approval to be obtained or batch out for the day, the terminal has to dial out. A Cent per transaction is charged to the merchant every time the terminal has to dial out. Typically, 18-20 cents (depending on type of business) is charged per dial out.

Monthly Statement Fees are what merchants get charged to receive a monthly report of transactions and discount fees. They receive this statement at the end of every month so that they can tally into their accounting what revenue they’ve received from bankcards. This is the same statement that ISA’s (Independent Sales Agents) review and analyze when consulting with a merchant to convert from the merchant’s current ISO. Statement fees are usually between $ 7.50-$ 10 a month (depending on type of business).

Note: You will find these Fees on your Merchant Processing Statement.

Derrick Tulali- Independent Merchant Account Specialist and Owner of Innovative Business Solutions

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