Merchant account discount rate and what it means to you
When setting up a merchant account, sifting through economic euphemisms and bank jargon can be a daunting and perplexing task. All you really want to know is what do these terms mean to for me?
The Merchant Discount Rate, for instance, is a confusing term that, simply stated, means the amount you will pay to have funds from a credit card transaction deposited into your bank account. There are several factors that determine your fee scale, including your industry, the type of credit cards you accept, debit as opposed to credit transactions, and the volume of your sales. Here are some factors you should keep in mind when shopping for an optimal discount rate:
- The Interchange Fee is the fee that the bank that issues the credit card pays to your bank for accepting the risk of the transaction. The credit card companies will pass this fee on to both the cardholder and the merchant. There are several rate “tiers” that merchant service providers can offer you. This rate is always in flux and you should shop around to secure the lowest rate available for your industry and business size.
- The Authorization Fee is a flat fee levied when a request for authorization of the transaction is sent to the issuing bank. This may be itemized on your invoice or bundled into the invoice total.
- Communication Costs depend on how the transactions are made. Different fees apply for transactions made in the store, over the phone, and on the Internet. Generally, on-line transactions incur the highest fees. You should work with your merchant service provider to determine which will be the most cost effective for you.
- Downgrades occur when there a problem with your transaction—missing or incorrect data, a settlement time longer than two days, or authorization failure. Downgrades can really drive up your fees and should be avoided as much as possible.
You and your merchant service provider will agree to terms of the discount rate prior to settling on your service but these are a few things you should keep in mind when entering into an agreement.