A Qualified Discount Rate is the percentage that a business is charged when they process a regular consumer credit card in a conventional manner governed by their merchant account provider that uses an accepted credit card processing solution. This is almost always the smallest rate a merchant may pay when taking credit cards for sales purchases.
The qualified rate is usually the percentage quoted to a merchant by a bank when the merchant initially applies for a merchant banking account. The qualified rate is based on the manner in which a merchant will take a greater part of their bank cards and credit cards. A retailer, for example, that only uses traditional swiped-through-terminal transactions with the cardholder present and batches all transactions within the proper time will be called as Qualified. There is lower risk of fraud in this scenario.
A discount rate (also known as a merchant discount rate) is a fixed fee based on a percentage necessary for processing a merchant’s credit card sales or other associated sales transaction. It is paid to the acquiring bank and a credit card processing organization for the expense and time that is required for the handling of such transaction. Effectively, this percentage covers the processes of the merchant’s account.
The discount rate charge also covers assessments, dues, network charges, profit and what is known as the interchange fee. The interchange fee is a cost that the merchant’s acquiring bank pays the cardholder’s issuing bank when merchants take cards using card networks for sales. The fee itself is deducted from the product or service purchase cost.
Discount rate percentages are almost always governed by business type and the scenario in which the credit card is processed. For instance, live transactions where the card and cardholder are both present have a lower risk of fraud, thus they receive a lower discount rate than mail, telephone, or online transactions, where the card and cardholder are not present. Ultimately, it is all about risk. Other factors also influence the ultimate rate, such as if a card is keyed manually, whether the card is keyed with an AVS code or not, or if the card is a rewards or corporation card.
There are three different discount rates for each transaction type: qualified, mid-qualified, and non-qualified. Qualified is lower than mid-qualified and mid-qualified is lower than non-qualified.
Typically sales transaction discount rates are a relatively small percentage. As an example, if a discount rate is 2.29%, the fee given to the acquiring bank is $2.29 for a sale of $100.00.