My Merchant Account Blog

Discount Rate

Saturday, May 14, 2011

This fee is probably one of the most confusing terms in the merchant account industry.  When you hear the word discount, you think you might be getting something for less.  In a sense, you are.  Your income will be discounted - not by your choice.  This fee has a number of fees included, mainly the interchange rate, assessments, network charges, and merchant account provider fees.  Usually, the interchange rate is the largest fee, being paid to Visa / MasterCard / Discover Card / American Express.

There are basically two types of merchant accounts - retail and keyed (also known as card not present, e-commerce, Internet, Mail Order / Telephone Order (MOTO)).  Retail discount rates are cheaper because the risk of a chargeback is not as high as a keyed account.

Qualified Rate

This "qual" rate is the price that is usually listed on the agent's website.  A lot of times, you won't even see the other rates until you sign the contract.  Usually, this rate is what you will be charged on most transactions. 

Mid-Qualified Rate

Some providers have this "mid-qual" rate in their structure to help increase their income.  Usually, merchants won't even know they are being charged this rate until they review their statement.

Non-Qualified Rate

These transactions are downgraded to "non-qual" for different reasons.

• Extra charges from the card associations (rewards or business cards)
• The transaction was not completed in a timely manner - usually when you do a transaction, that money is guaranteed yours for a certain amount of days.  This is why most processors will automatically batch the transactions for you daily.
• If you have a retail account and you key in the transaction (the risk of a chargeback is higher)
• If you have an Internet account and you do not do Address Verification Service (AVS) (the risk of a chargeback is higher)

This structure makes is more profitable for the merchant account provider.  For example, if you have an e-commerce business and your customer does not live in the United States, you probably will be unable to do Address Verification Service (AVS) since this service relies on the house number and ZIP code.  Let's say your standard rate is 2.15%.  Your mid-qual rate is .5% and your non-qual rate is 1%.  Since AVS cannot be done, that transaction is 3.65%. 

Their is also a 6 tier structure as well that is offered by some providers due to a lawsuit brought by Wal-Mart.

Also known as Qualified Discount Rate.

With the fee, providers might have a three-tiered pricing structure: qualified, mid-qualified, non-qualified.

See also mid-qualified rate and non-qualified rate.

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