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Understanding Discount Rates

May 29th, 2008

Understanding complex processing fees is not easy for anyone these days, including merchants.

However, if you pay attention to a few of the key factors affecting costs and put measures in place to prevent them, you can save thousands of dollars in annual processing fees!

That major credit card companies (Visa and MasterCard) have come up with an interchange category system often referred to as “discount rates” for each standard SIC code or merchant category code.

This means card processors assign merchants to a specific category based on their processing environments. There is a discount rate set for each merchant that assumes the merchant is compliant with prescribed procedures. Failure to comply, such as neglecting to obtain electronic authorization, can results in much higher fees.

Most often, discount rates are divided into a percentage rate plus a set transaction fee. There are three general interchange categories – qualified, mid-qualified and non-qualified – with multiple subcategories. Confused yet? Stick with us.

Qualified transactions are swiped, magnetically -read transactions that occur face-to-face with the customer present. These transactions have the lowest risk, so they are given the lowest pricing. The other condition for these transactions to qualify at this interchange level is that the transactions are batched out and processed the same day they were run.

Mid-Qualified transactionsare most often keyed in using the card numbers and not swiped. It requires AVS data (street number and zip code of the cardholder) to be passed through to the processor. Since April 1, 2008 Visa’s new Signature Cards (usually airline and gas rewards cards) will qualify at the mid-level, even though the card is swiped. Most often, merchants are surcharged higher rates than the qualified, swiped transactions.

Non-Qualified transactions have the highest-risk and consequently are the most expensive transactions. There are several factors that will cause a transaction to receive Non-Qualified status. These include keyed transactions that do not include AVS data; improper SIC code; missing required data; Rewards 2 Signature Cards; if the transaction involves a corporate credit card (only MasterCard swipes at the lowest pricing rate); and if the is processed within 36 hours of the sale/capture date.

Adherence to these policies and procedures, and that of your individual merchant service provider, can result in significant savings. If you have additional questions about processing fees, or would just like to see if yours are comparable to others, drop us a line. We’ll review your statements for FREE and let you know if you are in fact getting a “good deal.”

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Entry Filed under: Advice,Rules and Regulations

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