If you want the best merchant account for your business you need to pay attention to 3 key areas. First, know what your options are best merchant accounts for high risk for structuring your account. Second, know a little bit about the different kinds of cards on the market (they affect rates). Third, make a good estimate of what you expect your average ticket amount to be.
How a Merchant Account is Structured
The way a merchant is charged to process credit cards depends on how the account is structured. The 3 most common structures are:
Each plan charges two types of fees – a “discount rate” + a transaction fee (or “swipe” fee). The discount rate is the percentage of the sale the merchant pays the processor who set up their account, and the transaction fee is a flat rate charged every time a card is “swiped” through a terminal, “keyed into” a terminal, or processed online.
A 3-tier structure means there are three categories, or, “tiers” of discount rates a merchant pays, depending on the card being processed. They are: a qualified rate, a mid-qualified rate, and a non-qualified rate. A 4-tiered structure still has a qualified, mid, and non qualified rate – but debit card transactions are separated out and charged a lower rate – which creates the 4th tier. Interchange plus is the actual cost your processor pays to the card networks, plus their mark-up, usually expressed as “basis points”.
How Different Cards Affect Rates
There are so many different types of credit cards on the market one can hardly keep up. Fortunately, when it comes to how their rates to the merchant are determined there are a few key factors.
First, is it a standard bank card (i.e. Visa or MC), with no rewards attached to it? If so, it’s the type of card with the lowest discount rate – the qualified rate.
The next type of card which affects rates is the reward card. While consumers love reward cards merchants aren’t as fond of them – because they cost more to process. When a reward card is swiped it will be downgraded by the card network and hit with a surcharge, which the processor passes on to the merchant. This is the mid-qualified rate.
A non-qualified rate means a card has been hit with a higher surcharge than a reward card gets. Non-qualified transactions include business, corporate, or government cards. The reason for the downgrade on these types of cards is because they are statistically riskier and have a higher occurrence of fraud. For example, an employee making a purchase with a company card may make unauthorized purchases which end up being disputed by the accounting department when the charges show up on the merchant statement.
How Average Size Ticket Affect Rates
Average ticket size affect rates because it influences how the account is structured. If you are dealing with an ethical processor (ethical here meaning a processor who selects a pricing structure that is the most advantageous for the merchant), they will take your average ticket size into account..
If your average ticket size is $35 or higher, and you are processing a fair amount of debit cards, you will save money using a pin pad and capturing the pin number. There are actually many more factors involved in setting up the best account for a merchant, but if you’ll give yourself a basic understanding in these 3 key areas that alone will go a long way in saving you a good amount of money.