Understanding the cost of credit card processing solutions is important for all credit card processing merchants. The merchant service industry has developed over the years, a unique system and language. This language is bandied about by merchant service salespeople and too many credit card processing merchants nod knowingly How to start a credit card processing company either in an effort to avoid appearing unaware, or to expedite their escape from the sales pitch. Unfortunately, not understanding the terms can cost credit card processing merchants dearly.
The merchant fees associated with processing and the terms describing those fees are common among most processors. The terms may have slightly different meanings depending on the processor. Some processors prefer to use sweet sounding or powerful words to denote a cost, but the cost is still a cost by any name to the credit card processing merchants. Credit card processing merchants should make themselves aware of the following typical costs and terms for those costs used by the top credit card processing companies.
The discounts rate is the fee that a merchant’s bank (the “acquiring bank”) charges the merchant. The discount rate includes the interchange rate which the “acquiring bank” pays a customer’s bank (the “issuing bank”) when merchants accept cards. In a transaction, the purchaser’s bank receives the interchange fee from the seller’s bank. The purchaser’s bank then pays the seller’s bank and processor the amount of the transaction. The discount rate plus any transaction fees is then collected from the merchant by the acquiring bank.
Interchange-plus pricing is too often an uncommon rate alternative offered to merchants. However, it may be the wisest choice of pricing available to aware and knowledgeable merchants. This rate is simply put, a fixed markup plus the actual processing charges. This equates to actual costs of interchange (cost of processing) plus small fixed profit for the processor. This pricing is far less confusing
The qualified rate is the lowest possible rate paid for credit card transactions by credit card processing merchants. They are charged for regular consumer credit card (non-reward, etc. ) transactions that are swiped on-site; a signature is collected, and batched within 24 hours of the transaction. The qualified rate is the percentage rate charged to credit card processing merchants for “standard” transactions. The definition of a “standard” transaction may vary depending on the processor.
The mid-qualified rate is charged for some of those transactions that do not merit the “qualified rate. ” This rate is sometimes called the partially qualified or mid-qual rate. Credit card transactions which do not qualify for the “qualified rate” may be keyed in rather than swiped, the batch may not be settled within 24 hours, or the card used is not a standard card, but a rewards, foreign, or business card for example.
The non-qualified rate is applied to all transactions that do not meet qualified or mid-qualified standards. The non-qualified rate is the highest rate charged to credit card processing merchants for credit card transactions. This rate may be applied on the conditions that the card is not swiped, address verification is not sought, rewards, business, foreign etc. cards are used, and the merchant does not settle the batch within 24 hours of the initial transaction.
Merchants who accept credit cards must accept all types of credit cards carrying the brands they agree to accept. In other words, despite the fact that reward cards are charged the higher rates, merchant who accept the standard card for a brand, must accept the non-standard form of that branded card. For example, a merchant who accepts Visa® credit cards, must accept Visa ® reward cards.
There are many types of fees charged by processors and banks that are commonly found on processor statements. Many of these fees are fixed costs within the industry, and are charged across the board to merchants. Many more fees are charged to merchants depending on the size and type of merchant, or more significantly, the whim of the bank and processor’s salespersons. Some charges are assessed every day, every month, some assessed per event, and some are annual fees.
Settlement or “batching” charges occur almost daily. A “batch fee” is charged upon settlement of terminal transactions. In order to minimize transaction fees, merchants should settle their batches within 24 hours after the transaction. For most merchants, this means daily. For other, such as those who sell product at craft fairs, and special events, this could occur less frequently, however their batches should be settled within 24 hours as well. The batch fee is nominal, ranging from $. 10 to $. 35 per settlement.
Normal monthly fees may have different names, but the charge is fairly standard throughout the payment card processing industry. Monthly minimum fees are charged to merchants as a floor for monthly charges. If the merchant does not earn equal to or more than the monthly minimum, they pay at least the monthly minimum fee. It is the least a merchant will be charged per month for accepting credit cards. Monthly minimums typically run from $15 to $50 per month.