Merchant Discount Rates – Non Qualified Transactions
I know we’ve spoken before on merchant discount rates but I think this is one topic that warrants discussion over and over again. Ask any of the big box merchants and I’m sure they would agree since they’ve seen their fees more than triple over the last couple of years thanks to the introduction of non qualified transactions.
So here’s another breakdown of what you need to know when negotiating rates for your merchant account.
First, you need to be aware of what you’re being charged for and why. A while ago, we talked about interchange and that is what really drives the pricing to merchants. Interchange is the fee that is charged to the Acquirer by the card brands and paid out to the Issuers. This fee is basically the cost of processing transactions through the network but also goes towards paying for such rewards and points programs that the cardholders (like you and me) love to collect. Different cards have a different interchange rate. The more “prestigious” the card, the higher the interchange rate. The Acquirer then takes the interchange rate and add on their processing fees to come up with the merchant discount rate.
The reality is, you shouldn’t be able to negotiate a rate lower than the interchange rate. Because no matter how much an Acquirer loves you (and they do love you!), no organization will be willing to take a loss on a merchant. So here’s where you need to arm yourself with some information. Go onto the Visa and MasterCard websites (Canadian ones please) and look up their pricing. Believe it or not, interchange rates are published on their website, much to the Acquirer’s chagrin. Once you have this information, you’ll be able to make some educated decisions.
The interchange rate for a consumer electronic Visa transaction is 1.54%. An electronic transaction is any transaction that is swiped or inserted and processed and deposited within 3 days of acceptance. This is the baseline for any Acquirer pricing. This is what would be considered as a “qualified” transaction. What Acquirers then typically do is charge “Non-Qualified Fees” for any cards accepted that are not consumer electronic transactions, ie Corporate cards, premium cards, manually keyed in cards. And while these other card types have different rates (ie corporate cards have an interchange of 2.00%) it’s easier for the Acquirer to establish an all encompassing “non qual fee”. This is where you need to be weary of low sticker pricing. If you’re offered a rate of 1.75% plus 1.00% for any non qual transactions, you could be paying some significant amounts at the end of the month. So for example, using the last scenario, for any corporate, premium or standard (manually keyed transactions), you will be paying 2.75%. Now, you’re going to say to me… I’m not a B to B business and I process all my transactions through my terminal so I’m safe but for a few premium cards. Let me just tell you that while they may be considered as “premium”, almost 40% of all cards in the market are currently premium cards.
And be very weary of any deals offering rates lower than the interchange rate. This just doesn’t make business sense for any Acquirer to offer you 1.5% for Visa transactions… they’re not in the business to lose money so check the fine print for processing, depositing and closing fees.
Obviously this is a topic that warrants further discussion so you can be sure we’ll be coming back to this from time to time, but for now, just be sure you’re educated before signing an agreement. As the old adage goes, if it sounds too good to be true…
