Merchant Account Discount Rates

A number of merchants are not aware if the fact that discount rates are associated with merchant accounts. Understanding the working of discount rates will lead to humongous savings each month. A discount rate is a small percentage of the sales amount which is charged on a merchant by the bankcard acquirer for transactions settlements. This fee can be raised or changed by card associations at any point in time.

Discount rates are usually classified into three levels for a merchant account. They are non-qualified, mid-qualified and qualified. The qualified discount rates are the least and commonly advertised rates which are quoted by the service providers. These rates fall under the standard rates category. A qualified rate is charged on a merchant when regular customer cards are accepted. If the discount rate is downgraded, then higher non-qualified or mid-qualified rates will be applicable.

The mid-qualified rate is the next higher percentage discount rate. This rate is charged each time a customer’s credit card is keyed manually in the credit-card terminal rather than it being swiped. A transaction made by credit cards is also indicted with a mid-qualified rate. This holds true only if the credit-card is a business or rewards credit cards.

A non-qualified rate is the highest fraction rate which is charged on transactions. There are a number of reasons why merchant accounts downgrade when non-qualified rates occur. One reason or occurrence of non-qualified rate is the manual keying of the customer credit card onto the credit-card terminal without performing swipe and customer address verification. The other reason is the usage or special cards like business or reward credit cards.

The retail merchants usually accept credit-cards by swiping them across a terminal. These types of transactions are known as “card present” transactions. Instead of carrying out a manual swipe, if merchants key the credit cards, then such transactions will be downgraded to non-qualified or mid-qualified rates.

The non-usage of AVS system for the “card not present” transactions leads to merchants being charged with non-qualified rates. AVS or Address Verification System is a service which validates the address given by the cardholder with the records of the issuer. This determines the fraud or accuracy of the order. This service is also required during the authorization of credit card for MOTO transactions.

Another cause for transaction downgrade to a non-qualified rate is when a trader does not settle his daily batch in the given timeframe. The transactions made by credit card which remain on a trader’s terminal get stored in the “open” batch. These transactions remain here till they are “batched out” by the merchant. Hence, the status of this batch will be “settled” or “closed”. This must by one everyday by a merchant. Each month, when the monthly statement of the merchant account is received, a merchant must try and review the non-qualified and mid-transactions. If a huge difference is noticed from one month to another, then it is advisable to make an adjustment with the processor for this service.