Terms & Facts
Credit Card Processing Terms & Facts
The following are definitions to common terms in the credit card processing industry:
Basis Point: A basis point is equal to one percent of one percent in regards to numerical value. In regards to credit card processing the term is used to describe the discount rate, or percentage that a merchant pays, when accepting credit or debit card payments. For example, 1.15% is charged by Visa to process a particular credit card transaction and the credit card processor marked the service up 25 basis points, so the rate the merchant pays would be 1.40% (1.15% + 25 basis points)
Discount Rate: is the percentage that is deducted from the each and every credit and debit card transaction. Interchange discount rates are set by Visa, MasterCard and Discover. Credit card processors markup the interchange discount rate to provide customer service to merchants looking to accept credit and debit cards.
Effective Rate: is the total cost of all the interchange discount rates, fees, dues, assessments, and the markup that your credit card processor is charging you to provide the merchant account services.
Interchange: refers to the discount rates, transaction fees, dues, and assessments that Visa, MasterCard, and Discover have established to process credit and debit card transactions. These interchange fees are paid directly to the bank that issued the card by the acquiring bank, which is the credit card processing company. The credit card processors markup interchange to provide merchant account services to business owners looking to accept credit and debit card payments. There are well over 120 interchange rate categories, so interchange varies greatly depending the type of card, dollar amount, level of risk in the transaction, and method of processing the transaction. Interchange fees are assessed instantly with every transaction involving a Visa, MasterCard, or Discover credit card.
Beware of Tiered-Pricing
“Special Discount Rate” or Qualified Rate: this is the teaser rate that a lot credit card processors use to make their “tiered-pricing” merchant account services sound like a great deal. Anyone that quotes a special discount rate isn’t telling you the whole truth behind what your credit card processing is going to cost you, whether they are lying, or just don’t know any better. This is the lowest rate that you will get from your credit card processor, if you are on a tiered-pricing format, but a lot of interchange rate categories are probably a lot lower than this rate. In fact, it’s safe to bet that any credit card or debit card processed under this rate would be significantly lower with a merchant account set-up with interchange plus pricing.
Mid-Qualified: the percentage rates charged, when the credit card you are accepting, or the manner in which you are processing the transaction don’t meet the qualified rate requirements that are established by your credit card processor. Some credit card processing companies also refer to this rate field as partially qualified. Now, since Visa, MasterCard, and Discover don’t actually establish the criteria for tiered pricing, your credit card processor can decide what makes a particular transaction hit as mid-qualified. Mid-Qualified rates are typically 1.5 to 2 times the “special discount rate” that your credit card processor initially quoted you. The most common reason that other credit card processors use to justify this extreme markup on interchange rates is merchants keyed in a card instead of swiping it, or it is a reward card that you are accepting. Accepting a reward card, or keying in a transaction means that you will be facing a higher interchange rate, but it shouldn’t be as high as what your tiered-pricing merchant account is costing you.
Non-Qualified: Any time a merchant sees the words Non-Qualified on their merchant account they should know that they are really being taken advantage of; because this rate is usually more than double the “special discount rate” that your credit card processor initially quoted you. Most of the transactions that hit as Non-Qualified do so, because the merchant account provider lumped all corporate cards and some reward cards into this category. Now, it makes sense that Visa, MasterCard, and Discover charge merchants more to pay for the reward programs that come with these types of cards, but some credit card processors really lay into the merchants here. You call the credit card processing experts at BankCard POS, if you see Non-Qualified anywhere on your merchant account statement, because we can save you a significant amount of money.
Merchant Account Rates & Fees
There are a variety of rates and fees that come along with accepting credit cards. Most of these fees are charged with each payment accepted by credit or debit card and take the form of a discount rate or transaction fee. The vast majority of the fees that are charged to merchants that accept credit and debit cards are established by the credit card associations themselves, but merchant account providers make their money by marking up these set cost. Most merchant account providers charge batch header fees, monthly minimums, AVS fees, and other extra fees, but there are companies like BankCard POS that offer completely transparent interchange plus pricing too!
Interchange fees can change quite a bit depending on the type of card and manner in which the card information is submitted for processing. For example, swiping a credit card and keying the same credit card information into a virtual terminal would produce two completely different rates for the same transaction.
Interchange Plus Pricing
BankCard POS offers interchange plus pricing for all of our merchant account solutions, because we strongly believe it to be the most transparent and honest form of pricing for credit card processing services. This type of pricing uses the Visa Interchange and MasterCard Interchange tables to determine cost for credit card processors, so it makes sense to use it to show merchants what they are actually being charged to receive the merchant account services that they receive. Understanding how interchange works will allow merchants to determine what costs can be trimmed and what services are needed in exchange for that mark-up. BankCard POS always uses interchange plus, because we are confident that our services are well worth our mark-up and our credit card processing rates and fees are really hard to beat with this method of pricing. We also specialize in working with restaurants on their POS system needs, so it makes sense that we use interchange plus, because restaurants have relatively low average tickets and two thirds of the cards that they accept are rewards based.
These articles below offer different information on Interchange Plus Pricing and Credit Card Processing:
What Are Good Credit Card Processing Rates?
What Credit Card Processing Options Are Available For My Restaurant?
How Much Should My Point Of Sale System Cost?
Interchange Plus Pricing Means Low Transparent Rates And Fees!
What Does EMV Mean To The Merchant?
How To Save Your Small Business Money On Credit Card Processing!