What is a Merchant Account?

What does qualified discount rate, processing discount or processing rate mean?

Everybody gets them, few understand them and fewer still do anything about it. This is the built in fudge factor. Usually Merchants don't even get quoted on it. What is it? The credit card industry and it rates are based on risk. This risk is usually a surcharge rate added above the qualified discount rate. There is no getting around it. All processors are charged it and they intern pass it through to the Merchant with a mark up. Since the Merchant usually does not even get quoted this rate, when they understand it, the Merchant accepts and continues doing business with it. Once you've signed, you are normally stuck with it. Be aware while looking for your next processor, make sure you get these surcharges quoted. How do they work?

• Mid-Qualified Surcharge: Set up for Retail Merchant Accounts under swipe rates - Key entering a credit card. Did you know that keying in a credit card when set up under swipe conditions you get surcharged if you don't answer the AVS questions asked from the terminal? What questions? Street Address, Zip code, & CVv2 code. Each processor has the ability to program your machine to ask these questions when they arise. You don't get these questions? Surcharged.
• Non-Qualified Surcharge: Set up for Retail, Mail Order/Telephone order (MOTO), internet accounts - Most all Corporate credit cards, purchasing cards, business standard credit cards, and not answering VAS questions on MOTO and Internet accounts gets this surcharge. Businesses can come and go everyday with no risk of liability to pass on, therefore the risk of a Merchant doing transactions with companies, consumers over the phone or on the internet is higher.

Comes in two forms. Off-line and On-Line. Both forms require a VISA or Master Card logo on the debit or check card.

• Off-Line Debit card Processing: Most common way to accept debit/check cards is handling it as a normal credit card. Did you know that off-line debit card rates start 30 to 40 basis points lower than the standard qualified discount rate. Industry standards say 60% of all transactions today are from debit/check cards. You mean your processor does not have a different rate for your off-line debit card processing? Whose getting all that money? Be sure you get this rate quoted. Some processors try to average your industry and don't offer a lower off-line debit card rate. This is not good most of the time, because you don't know what percentage of credit cards taken are debit cards.
• On-Line Debit Card Processing: Pending your average ticket, this method of accepting debit/check card is the cheapest and most secure method available. In this type of transaction, the card must be swiped through the machine and a PIN number entered by the consumer. This PIN number is encrypted and sent to the processor and then the consumers bank for verification of PIN and the amount of the transaction. Processors are getting pretty sneaky with this one but the best we have seen is so much cents a transaction, period. Example On-line debit card is $0.65 a transaction, your Off-line debit card rate is 1.30% Discount + $0.25 a transaction. On a $100.00 sales your cost for online is $0.65 while Off-line is $1.30. However if your sale is $10.00 your cost for On-line is $0.65 and Off-line is $0.38. On-line debit card processing requires the use of a PIN pad. It can be internal to your credit card machine or external through a cable attached to the machine. Either way, ALL PIN pads must be encrypted by the merchants processor. Another words, for the PIN pad to be encrypted and secure, the processor has to physically encrypt it.

The interchange process makes it possible for customers with credit cards from hundreds of different banks to make purchases at thousands of merchant locations. As part of the interchange process, card associations charge banks or service providers that process card transactions an interchange fee for each transaction.

This fee goes to the cardholder's bank, known as the issuer, as compensation for expenses incurred in providing lines of credit to cardholders. Interchange fees make up a part of your merchant discount rate. The other part of your discount rate-the processing fee-compensates the bank that provides authorization, deposit, and settlement services for your transactions.

There are several reasons a transaction can be reversed:

Authorization error-a transaction was allowed even though the authorization was declined
Processing error-incorrect calculation on the sales draft, invalid account number, or expired card
Customer disputes-the customer denies taking part in the transaction, claims purchased merchandise or services were never received and an attempt was already made to resolve the dispute, mail order merchandise was defective, or a promised credit was never processed

Many states are now banning the printing of full credit card numbers on printed receipts. This is another effort to reduce credit card fraud.

By limiting the printed credit card number to the last 4 digits, your discarded credit card receipts can't be used to make fraudulent purchases.

At this time, truncation has been moving from state to state. It probably won't be long before there is a federal mandate requiring truncation nationwide.

No need to worry, you don't need to run right out and upgrade your terminal and printer. Over time, all terminals, printers, and software will only print the last four digits. Your equipment should be grand fathered as long as you don't have to replace any of it and don't require a new download for your terminal.

Currently this only applies to PIN pads and internal PIN Pads on terminals. According to new Visa rules, any new processing application that uses PIN DEBIT (where customer enters their 4 digit number) for debit cards, must use equipment that is PCI PED compliant. Replacement of existing terminals and PIN pads is acceptable but frowned upon and it is at the discretion of the processor. If you do not intend to use or use PIN DEBIT, PCI compliancy does not apply to you.