Understanding Credit Card Rates and Fees
If someone asked you today how much accepting credit card transactions is costing your business, chances are that you wouldn't be able to give them a very precise figure. The merchant services industry has created a myriad of different fees that can be imposed upon a merchant via a variety of rules and regulations created by the card associations. National is committed to working with our customers to assure that they receive the best rates possible for their business.
Interchange fees are the fees that card associations charge for processing a transaction. There are a variety of different interchange fees based on how the transaction is sent, the card type, and the type of merchant account established. An interchange fee is usually stated as a percentage of the total sales, plus a flat per transaction rate. This fee is paid by the merchant bank to the issuing bank, who then pays the card association.
The discount rate is the fee paid by a merchant to the merchant service provider to handle the deposit of credit card funds into their bank account. It is usually quoted as a percentage or fractions thereof, known as basis points.
Many merchants experience transactions that "downgrade." The merchant will pay a higher rate for downgraded transactions, depending on the level of failure, card type, and risk assessed with the transaction. National is committed to helping you avoid downgrades as much as possible.
While certain aspects of the discount rate will always remain, such as the interchange fee, some solutions can help lower overall costs - such as communication fees and split processing fees - that a merchant services provider must pay. Those savings can and should be passed on to the merchant to help lower the merchant's overall effective rate.
All payment card processors charge a flat fee per transaction for an authorization request. This fee may be listed as its own line item on the merchant services account statement or it may be "bundled" into the merchant's discount rate.
There is always a fee related to moving a sales transaction from one point to another, which is referred to as the communication cost. This cost varies, depending upon the method being used to enable the transaction. The most costly form of communication is via a dial-up connection, since the processor has to maintain toll-free telephone circuits and modems for the calls into its network. There are also a variety of connections that can be made using the internet which can be used with terminals and online web stores. A third form of communication is a private line between the merchant and the processor. With this type of connection, the merchant is charged a monthly support and maintenance fee for the dedicated line. This is a fairly expensive option and primarily used by very large merchants that process thousands of transactions per day.
A large portion of the cost associated with credit card acceptance is the downgrading or non-qualification of transactions. These are the transactions that do not qualify for the best possible discount rate because they don't meet the data content or transaction timing regulations set by the card associations. When a transaction is downgraded, the merchant is charged additional basis points on top of the quoted discount rate.
There can be different reasons that a transaction will downgrade, including authorizations not being settled within two days of initial authorization, missing or invalid transaction data, missing or corrupt swiped data from the read of the payment card, or no AVS number input attempt on manually keyed transactions.
For any given credit card transaction the cardholder can dispute the charge. When the cardholder files a complaint with their issuing bank that a charge was not valid, the issuing bank issues a retrieval request or chargeback that is sent to the merchant. There is a fee associated with each chargeback that occurs.
There are a variety of other instances that may result in a chargeback that do not require the cardholder to initiate the event. These are initiated by the processor, merchant bank, or issuing bank. Even a partial reversal of the original amount of the transaction is considered a chargeback.