Credit Card
While almost everyone in business accepts some form of electronic payment, such as credit cards, or an on-line payment network, there are still those new businesses that come along and simply jump on the first ‘merchant service’ they find without exploring alternative offerings or even fully understanding the terminology and costs that are part of ‘merchant language’. So no matter how, or if, you currently accept electronic payments it is important to have a basic understanding of a few concepts and terms related to a merchant service account:
Merchant Service Provider – They serve as an intermediary between your company (the merchant) and other financial institutions that are involved. They set up online connections.
Merchant Bank and/or Issuing Bank – They manage the payment and acceptance of transactions and actually supply the merchant account.
Issuing Bank – This is the banking institution that furnishes a line of credit to customers.
Fees and Rates – These are fees that are assessed to a merchant for transactions:
- Qualified rates – Fees associated with accepting a credit card payment with the card physically present, it is the percentage that is charged to process the payment (typically this is the lowest rate because the merchant bank considers this the lowest risk type transaction).
- Mid-qualified rates – When a credit card does not meet the eligibility requirements of the Qualified rate, many merchant services offer a mid-qualified rate. (An example would be where the card is not swiped, but the number is hand entered on a terminal.) Some merchant services do not offer mid-qualified rates.
- Non-Qualified rates – The percentage that is charged when the credit card fails to qualify for either of the Qualified or Mid-qualified rates. (There is missing info or the billing address can not verified; etc.)
- Volume based rates – New businesses typically receive a higher rate structure because they do not have an established history. However after they have been conducting a reasonable volume of business over several months, a company may ask their merchant service ask to review the company’s rates examined to determine if they qualify for a lower rate due to volume and history.
- Downgrade – This takes place when, as an example, when a transaction is not settled in two days of being authorized or the swipe data is corrupted.
- Chargeback – When a customer disputes a credit card transaction a chargeback process begins which varies based upon the merchant service.
- Interchange Fee – These are charges that are assessed by major credit card associations such as MasterCard or Visa that actually cover the money transmission. These fees are typically a total transaction percentage plus a flat fee.
- Authorization Fees – Fees are charged to a merchant to verify address information when a customer and the actual credit card are physically not present.
Probably the best tips I can give you are (1) to seek out a Merchant Service that provides a simple statement that is easy to understand. (2) While you may be able to find a low rate with a specific provider, be careful of extra fees which can relate to higher total costs. (3) Never enter into a long term agreement with a Merchant Service provider, you may become dissatisfied with their service and then find yourself stuck in a contract unless you pay a penalty to get out.
So if you are just considering a merchant service, considering a change, or looking for a better deal, I hope these tips have helped.