This most costly mistake that a business owner can make is not knowing what your rates are, and how they are charged. Typically merchant accounts will be broken into rate tiers, and you MUST know what all of them are, and how they are charged to you.
The most important thing is knowing how you are charged rather than what your rate is. Most merchant account providers will quote a “teaser” rate which is the qualified or “swiped” rate and will omit the mid-qualified and non-qualified rates.
I will cover the four tiers that travelguidebook most merchant account providers will charge in a standard tier based rate program. Keep in mind that all off the different rates will average out to an effective rate, so it is important to know how you are going to be processing your credit cards, i.e. over the phone orders vs. swiped transactions in a store front, for example. Below are the categories and industry terms that you should look out for in negotiating an agreement.
Debit Card Rate
A debit card rate is charged when a consumer pays with a debit card. There is no pin number required and it must be a swiped transaction. This category or “tier” is also known as “Offline Debit” or “Swiped Check Card.” Rates in this category typically range from 1.29% to 1.69%. It is the lowest of the four rate tiers.
This category is for credit cards that are owned by an individual (not a Business) and an approval is given after a swiped transaction. This rate category is often referred to as a “swiped rate,” and rates typically range from 1.69% to 2.15%.
Mid Qualified Rate
This category is largely comprised of key entered transactions and rewards cards. Key entered transactions are made up of debit and/or credit cards where the number has to be hand keyed into the terminal. This may occur if the magnetic strip on the card doesn’t work, or you may receive a phone order from one of your customers. Rewards cards are also known as “Points” cards. These types of cards have a different rate than the normal swiped rate, and usually fall into a mid qualified rate category. Rates in this category usually have a surcharge of.50% to 1.99%. Surcharge is added to the swiped rate so make sure you realize that the mid qualified rate is often between 2% and 3% (sometimes more, but rarely less).
Non Qualified Rate
Non qualified rates will be paid when a business card is accepted. This rate category is also referred to as “corporate card” rate. Some of these transactions will be swiped and others will be key entered. Rates in this category usually have a surcharge rate of 1.25% to 2.50%.
In addition to the rate tiers you will have transaction fees, statement fees and PCI compliance fees related to your merchant account. These fees are important to pay attention to as well, and I will discuss each of these fees in the next article.
Brian Manning has been in the Merchant Services industry for over 8 years. He has been serving the Indianapolis community as well as nationwide clients with all types of payment processing needs. You can check out his latest industry updates on BancardSales and read his client Testimonials along with other industry leading updates about credit card processing.