Signs that you are currently paying too much...

1. You have the same rates for both MasterCard and Visa transactions

2. You have only one Qualified Rate

3. You pay Mid & Non Qualified Rates

Merchants must pay even closer attention to their rate structure than to their rate. Because it is important to understand the value of pricing strategy; merchants should be asking what's™ your rate structure, not what's your rate! Having more knowledge about what determines your rate and the fees that impact your bottom line cost will help you make an informed decision when selecting your next credit card processing provider.

Do you have the same rate for both MasterCard and Visa transactions?

MasterCard and Visa carry different Interchange pricing. Since Visa may account for as much as 70% of your transactions, if you pay the same rate for both MasterCard and Visa transactions, you are not qualifying for the lowest rates available.

Do you currently have only one qualified rate?

If you do, you are not able to qualify for all the reduced incentive Interchange pricing levels available to you. For example:

• Restaurants can qualify for reduced Interchange rates for credit and signature debit (check cards) transactions under $15.

• Signature debit card transactions that qualify for both Merit 3 Debit and Restaurant Debit will qualify at the lower of the two rates depending on the transaction size.

Do you currently have a tiered rate structure with qualified, mid-qualified and non-qualified bucket pricing?

• Traditionally, most merchants only paid attention to the qualified rate; therefore merchant account providers have built expensive margins into their mid and non-qualified pricing.

• You will want to avoid this pricing structure since you will find that many of the transactions that once were defined as Qualified rates may now be re-defined as a Non-qualified rewards card – increasing your bottom line costs.

These rate structure examples illustrate the upside of having a professional payment systems consultant work with you to analysis your card processing activity to establish an Interchange rate structure for your specific industry

Merchant service providers will always advertise their accounts using the qualified discount rate because it is the lowest and most appealing rate. For example, a retail merchant account may have a discount schedule that looks like this:

Qualified Discount Rate: 1.71%
Mid-Qualified Discount Rate: 2.39%
Non-Qualified Discount Rate: 3.49%

When shopping for a merchant account it is very important to consider all of the discount fees listed, not just the qualified rate.

When a credit card transaction is raised to the higher mid or non-qualified rate it is said to have " downgraded ". There are two very basic reasons why a credit card transaction will be downgraded to a higher qualification rate. The first reason is the type of credit card that is being charged, and the second is the method that the merchant uses to charge the card.

The first reason why credit card transactions will downgrade to a higher discount rate has to do directly with the type of credit card that is being charged. The card associations (VISA & MasterCard) actually have well over 100 different qualification rates for different types of credit cards, and each individual type of card is assigned a different qualification rate. Of course, having merchant accounts with hundreds of different rates would be very confusing, so most merchant accounts are setup with three general rates.

When a transaction is processed the true qualification rate of the card being charged is rounded up to the next closest category, which either mid or non-qualified depending on how the individual merchant account is setup by the service provider. Exactly how a credit card will be qualified, and into which rate category it will fall has a lot to do with the individual merchant service provider. For instance, a corporate credit card may fall into the mid-qualified category when run through a merchant account that is provided by company "A", where the same exact credit card will fall into the non-qualified category when run through a merchant account that is provided by company "B".

Depending on their size, and/or the agreement they have with their acquiring bank, your merchant service provider will have a certain degree of control over how different types of credit cards qualify with your individual merchant account. If you will be accepting a lot of corporate credit cards, small business credit cards, or other types of non-personal cards, you should work with your merchant service provider to have these types of cards qualified into the best possible category.

The only type of credit card that will run through at a qualified rate on almost all merchant accounts is a personal, non-reward credit card that is issued by a United States bank. The following is a list of credit cards that are most often charged at a mid or non-qualified rate.

Small Business Credit Cards
Corporate Credit Cards
Government Credit Cards
International Credit Cards
Rewards Credit Cards
Cash Back Credit Cards

The second reason why a credit card transaction will downgrade to a mid or non-qualified rate has to do with how the credit card is transacted by the merchant.

Keying-In - Retail merchant accounts are setup under the assumption the merchant will process their credit card transactions by physically swiping the credit card through a terminal. This process is called electronic data capture . If a retail merchant keys-in a credit card transaction by entering the credit card number on the keypad of their terminal, the transaction will most often downgrade to the non-qualified rate. It is very common for a retail business to also have an e-commerce website. Many retail businesses use their card present merchant account  to charge for their online sales as well, and they are unaware of the fact that they are paying higher fees for these transactions.

Address Verification Service (AVS)  - VISA requires all card not present  transactions to be processed using AVS. VISA also requires the AVS information to match and be correct in order for transactions to run at the lowest possible rate (qualified). Any merchant that processes credit card transactions when the customer and/or the card is not present (such as an online business or mail order business) must use AVS when charging VISA cards, to avoiding having all VISA transactions automatically downgrade to the non-qualified rate. In order to use AVS properly, the billing address of the credit card being charged must match the billing address on file for that card at the issuing bank .

When taking a credit card order you must be sure to collect the customer's correct billing address and zip code. Once you have this information you must be sure to enter it into your terminal, gateway, or processing software, when charging the customer's card. If the AVS information does not match, the terminal or processing equipment will let you know by displaying an "N". Please note that all processing equipment is different, and you should verify processing symbols with your merchant service provider. If you choose, you may void transactions that don't show an AVS match, and contact the customer to obtain the correct billing address. Once you have the correct billing address, you may then recharge the card, and the transaction will fall into the qualified category.

It is not possible to know which qualification rate a credit card transaction will fall in to before charging the card.

Qualified Discount Rate - The qualified discount rate is the lowest possible percentage rate that can be charged for a credit card transaction. To maximize the number of qualified transactions, be sure that you are properly charging cards per the guidelines set forth for your specific type of merchant account. These guidelines are covered later in this guide, or they can be obtained directly from your merchant service provider.

Mid-Qualified Discount Rate - The mid-qualified discount rate is the second highest discount rate.

Non-Qualified Discount Rate - The non-qualified discount rate is the highest possible rate that can be charged for a transaction.

It is very important for you to keep an eye on exactly how much you are paying in mid and non-qualified fees by reading your merchant account statements every month. If you are like most business owners, you will greatly benefit from reading the upcoming section of this guide that explains how to properly read and understand your processing statements.