Having credit card processing services for your company is beneficial to your financial growth. However, when you start using credit or debit cards for your business, you will have to set up a merchant account. A merchant account is a financial bank account that provides the owner to use credit or debit cards for payment in exchange with goods and services offered. In this article, we’ll talk about the most common rates and fees associated with opening an account. These fees are already set by may be in the form of startup fees, authorization fees, monthly minimum fees or batch fees.
Before selecting from a list of credit card processing companies, make sure you have done some inquiries. Consider the costs for setting it up, the software used and the equipment. Keep a track of the expenses and eliminate those that you do not need. These fees may be charged one-time, periodically, on a percentage basis or a per item basis. Below are some of the rates and fees they charge so you’ll have an estimate on your budget.
Discount Rate
These are rates that consist of dues, assessments, fees, network charges, markups that you need to pay for your payment transactions. Interchange plays a very big role in determining the discount rate, which will be explained later.
Qualified Rate
Basically, the qualified rate is the rate you are charged for each transaction when a credit or debit card is used in the credit card processing terminal. A standard set of rules are followed to be able to get the qualified rate. These are:
- The authorization request for payment is good for one transaction only.
- The transaction must match the authorization data including the amount.
- The card is used as a personal credit and not for business.
- The card is present during the transaction time and the magnetic strip can be read by card reader terminal. Additionally, a signature (physical or electronic) from the cardholder should be present.
- The transaction is authorized by the cardholder and should follow the standard retail industry policy.
It has a very small percentage of human error or fraud and has the lowest rates for merchants. Most debit cards and check cards are under this category save for those that need to be manually entered in the card reader or terminal.
Mid-qualified Rate
Mid-qualified rates are rates that are charged when a payment transaction needs to be entered using the Address Verification System (AVS). It would ask for the cardholder’s address, zip code, the card number, the expiration date and the CVV (Card Verification Value) number. All these numbers must match before it can be processed.
Most of the time, mid-qualified rates are charges for those are cards that do not fall under the category of the qualified rate. Business cards, reward cards or specialty cards are often found under this category. The information of the card is manually entered and not swiped.
Non-qualified Rate
Non-qualified rates are the maximum rates you can be charged in a credit or debit card transaction in a credit card processing company (CCPC). The card details are manually entered but there is lack of information or address verification is not needed during the transaction. Cards under this category are promotional card or corporate cards.
There is little difference between non-qualified rates and mid-qualified rates. Make sure that you know the rates of your payment processing software to make sure you know that you are charged accordingly. However, if a transaction was classified incorrectly, for example a non-qualified rate was processed at a much higher rate. This transaction is called a downgrade (which we would talk about later on). Sometimes downgrade fees will be classified under as miscellaneous fees. If you have too much downgrade categories, you have a chance of getting higher rates often. The best credit card processing services should have no problems in categorizing each transaction correctly.
Downgrades
As mentioned earlier, when transactions from your clients do not satisfy the requirements for a qualified rate, the rate increases. We call this a downgrade. If you want to lessen your downgrade level, try to have every transaction satisfy the requirements needed for you to have the smallest rates possible for your transactions. You can also keep track of your transactions and make audit reports to see if there are any errors in your finances. If you do see any discrepancies, report it immediately. As much as possible, clear all credit and debit card transactions on a daily basis.
Again, a transaction can be downgraded if it does not match any information on the card or does not satisfy the interchange requirements. A downgraded transaction can be bad for your business because it’s going to cost you more. Check out credit card processing service reviews to find out what tools to get which can help in limiting downgrades.
Batching/Batch Fees
Batching or batch fees are fees charged if you’ve made a specific number of payments on a daily basis. These completed payment transactions should be given to the acquiring bank or financial institution for payment within 24 hours. It has to be done manually. If you do not do this, there’s a higher chance of payment disputes and downgraded payments.
Most of the time, a lot of people would say that batch fees and downgrades are hidden fees in a payment processing software. These are fees that are not significant if there are a few, but could mean much if there’s a large quantity of them that could break your business.
Interchange Fee
An interchange fee is also called a swipe fee. Banks charge this fee for handling costs and preventing credit risks when placing a debit or credit card transaction. The fee is used by banks to fund a transaction and is considered as a backup in case any issues occur. This fee can change and is calculated according to the number of fraud losses, authorization costs and other factors. To make sure you’re not paying more than you have to, you can ask your card processing services tool to pay this fee on an as-in basis only. You also have a better view of your transactions when you do this.
Chargeback
A chargeback occurs when the owner of the card disputes the credit or debit card transaction made. They can either call you directly to let you know or just their bank. Their bank will now then tell you that the customer is disputing the charge. If it has been proven that the transaction was not authorized, the money goes back to the cardholder’s bank. The cardholder is allowed up to 180 days to dispute a charge. Within those 180 days, you must take immediate action. If you are unable to take action on the dispute, there is a chance you’ll be given a penalty or lose the transaction payment.
Additionally, aside from the payment not being authorized by the cardholder, if the customer is not satisfied with the product, they can return the item or services and ask for a refund as long as it is still under warranty. Credit Card Processing Services should be able to help you act when a chargeback occurs, explaining to you any charges that may be involved in the transaction. Complete credit card processing service reviews can be found in CrowdReviews website here.
Other fees that you may need to know:
- Annual or monthly fees. Card processing services software may charge annual or monthly fees in order to maintain your account.
- Monthly minimum fee. The monthly minimum fee is a fixed rate fee that not all CCPC have. Aside from the monthly fees, it requires a certain target or number of transactions made in each month and if you do not meet the requirements, you will be charged on top of this fee.
- Statement fee. A statement fee is fee charged to you for giving out a breakdown of the transactions made, also called the statement of account fee. This is another fee and is different from the monthly minimum fee. Most of the time, this fee can be waived if you want to have paperless or electronic billing.
- Transaction fee. This fee is charged when you agree to an authorization request. This is only applicable to an authorization request that has no errors and has been agreed upon.
- Customer service fee or maintenance fee. This is the fee charged to you for maintaining the account and/or providing customer service.
- Authorization fee, also called authorization request fee. This fee is charged when a transaction needs to be authorized by the cardholders’ bank. This fee is charged even when the request is not approved.
- Early Termination Fee (EFT). If you want to end your contract early, you’ll be charged with the Early Termination Fee. The EFT can be prorated while some are not. Contracts usually have 1-3 years duration.
The best credit card processing services should have all their rates transparently explained to you and no hidden fees should apply. Visa and MasterCard are the most common debit/credit card type of cards. Are you interested to find out more about these cards? Just click on their respective names to read about Visa and MasterCard‘s policies and their charges.
Keith Moore
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