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FLAT RATES OF TOBACCO MERCHANT ACCOUNTS

It is known fact that there are many charges associated with merchant accounts. For simplicity sake, it is a good idea to have flat rates in merchant accounts but in practice, there is no flat rate concept in these accounts. Charges associated with processing will not become a flat rate. Generally, merchant accounts rely on bucket pricing or tiered structure and different discount rates are applicable to non-qualified, mid-qualified and qualified. Interchange plus pricing is slowly becoming the prevailing method that comes close to flat rate that merchants think to be convenient.

While some fee associated with merchant accounts are periodic, others are levied on percentage/per item basis. The account provider defines some fee while the percentage fee is arrived upon and passed to banks that issue the cards. This is based upon interchange fee (rate schedule) that is set by Master card & VISA. Interchange fee is different for various transaction types and card types. Some examples of transaction types are manual keying in and card swiping.

Discount rates include fee, mark up and network related charges that have to be paid by merchants while they accept debit and credit cards. Among these fees, Interchange fee is the most significant. Banks add mark ups to the fees for generating profits. While numerous price models for billing merchants which MLSs/ISOs and banks use prevail, some famous price models that are commonly used are:

Three tier pricing – This is both simple and popular compared to the other price models in vogue. It is a fact that a newer six tier pricing method is getting more popular response. As the name suggests, in the three tier pricing model, the account provider first groups all the transactions under three categories. The different tiers have different criteria associated with them and so have different rates associated with them.

Interchange Plus Pricing – This pricing model is associated with some merchant account providers. The pricing model uses interchange tables which were released by MasterCard and VISA. Using these, discount rates are arrived upon after adding mark ups, assessments, fees, interchange rates and other such costs.

Bill back – This is a much newer model and is actually interchange plus pricing’s variation.

The processing charges of merchant accounts are actually based upon interchange reimbursement of Master Card and VISA. Interchange reimbursements decide the card transaction percent which must be paid to issuing bank of the cardholder by the acquiring bank of the merchant.

The fundamental truth behind the non possibility of implementation of flat rates is the discount categories since many of them exist. Implementation of flat rate is possible when a merchant is willing to pay maximum interchange for each transaction. This is not possible practically since the cost associated with such an account is going to be impossible for anyone.

So, the only practical possibility of flat rate is an Interchange plus account having a single mark-up. Another option would be tiered accounts whose fee is divided under few sub categories only. Contact one of our helpful account representatives to assist you in the setup of a high risk merchant account or offshore merchant account for a high risk merchant.