Discount rates are percentage-based fees needed to process a credit card or similar sales transaction for a merchant, which are paid to a credit card processing organization and an acquiring bank for the expense and time that is required to handle of several electronic transactions. The three “tiers” are referred to as Qualified, Mid-Qualified and Non-Qualified. These rates cover network charges, dues, assessments and provider profits. This also includes an interchange fee, a fee the acquiring bank of a merchant pays the issuing bank of a customer when a merchant accepts cards to make purchases.
The scenario in which the credit card is ultimately processed and the type of business being done determine the discount rate percentages. Real brick-and-mortar transactions (where a credit card is presented) always have a lower discount rate than a transaction that occurs online, via mail or over a telephone (when the credit card is not there) because of the lower risk of fraud when the card and cardholder are present. Other things to consider, like when a card is a corporate card or rewards card or is keyed with an AVS code, influence the actual rate as well.
Setting the Fees
Usually, the discount rate of all sales transactions owed to the bank by a merchant for credit card processing is a small percentage. As an example, if the discount rate is 2.37% then the discount rate charge paid to the acquiring bank is $2.37 for a sales charge of $100. There are various discount rates for every kind of transaction: Mid-Qualified, Qualified, and Non-Qualified. A Mid-Qualified is higher than a Qualified rate and Non-Qualified rate is higher than Mid-Qualified rate.
A Mid-Qualified Rate (which is sometimes called a partially qualified rate) is the percentage rate that merchants are charged when they accept credit cards that don’t qualify for the smallest rate. It will occur for a few reasons, such as when a the credit card a customer is keyed into a POS as opposed being swiped magnetically, or a business credit card or special rewards is employed. Many Mid-Qualified rates are applied because an address verification process is required for the sales transaction, such as an AVS or CVV2. In others cases, credit card sales transactions were not batch and settled within a day after they were initially processed by the merchant for an in-person, card-present scenario at a retail location.
A Mid-Qualified rate is always greater than a Qualified rate. Many transactions which may be grouped into Mid-Qualified may cost a provider much in interchange fees, which is why merchant account providers mark up these rates.