Who’s Determining Your Merchant Discount Rate?
Merchant discount rates can seem complicated at best and arbitrary at worst. Who decides what rate you get?
A discount rate is a fee payment processors charge merchants for handling credit or debit card transactions. The discount rate is generally a percentage of the overall transaction amount.
While often quoted as a single rate, the actual fee represents the sum of multiple charges, including the card network’s interchange rate and assessment fee and the markups of the various entities involved in processing the transaction.
Discount rates are typically tiered depending on how the transaction occurs at the point of sale. The three tiers are qualified, mid-qualified, and non-qualified, with each level having an increasingly higher discount rate.
Simply speaking, a qualified discount rate applies to low-risk transactions; for example, merchants swipe the card and authorize charges electronically through certified terminals.
Mid-qualified discount rates apply for transactions involving rewards cards or manually keyed card information and using Address Verification Services (AVS). Non-qualified discount rates apply to transactions without AVS and involving corporate cards, where risks are deemed higher.
The tiered discount rate structure can be confusing because many factors come into play, such as whether the transaction is online or in-person and the type of card used. And each processor has unique criteria for determining which tier to place a transaction. As a result, discount rates can vary significantly among processors.
The best way to ensure your business gets the best discount rate is to obtain an unbiased review of your costs from an independent firm that allows you to select from multiple payment processors.