Tuesday, July 6, 2010

Credit Card Processing - Discount Rates and Transaction Fees

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In the competitive business environment that exists today, it is critical you give your customers many options to pay you for your products and or services.

Setting up a merchant account so you can accept credit cards from  your customers is one of the most, if not the most, important initial decisions you'll make when you start a new business. The following article will explain discount rates and transaction fees so you are better prepared when it comes time to pick a company for credit card processing services.

Discount rates and transaction fees go hand in hand. These are the fees you pay to process a credit card transaction. The discount rate is a percentage that is deducted from the total amount of the sale. For example: If your qualified discount rate is 2.20% and you charge a customer's credit card $100, then you would pay $2.20 to process that transaction. But that is not all - you also pay a transaction fee as well. If you have a transaction fee of 25 cents, then your total cost to process that $100 dollar credit card transaction would be $2.45.  

What do you mean by qualified discount rate? The discount rate you pay will not always be the same percentage. It will change based on a number of factors, such as card type and how you actually process the card. Most personal debit and credit cards will fall into the qualified rate category. However, if you take a corporate, business, government, international, or personal rewards card, you will pay a higher discount rate on these types of cards. The discount rate on these types of cards can range from 1% to 2% over the qualified rate. This means that if your qualified rate is 2.20% and you accept an international card, your rate could be as high as 4.20%. Over time this can add up, so it is very important you factor this into your pricing when deciding how much you are going to charge for your product or service, especially if your plans include doing a lot of business to business transactions or selling internationally.

Another factor that influences the discount rate you pay when credit card processing is how you process the credit card. Merchants that swipe credit cards usually pay a lower discount rate than merchants that key in credit cards using an internet merchant account. The qualified rate for a merchant that swipes credit cards will usually be close to 1.80% but a merchant that keys in their transactions will pay a qualified rate of 2.40%. The reason for this is risk. Visa/MasterCard feel there is less risk of the transaction being fraudulent or disputed if the customer is present during the transaction and the merchant is able to swipe their card through credit card processing hardware or software.

Most credit card processing companies will only refer to their qualified rate when they advertise or try to sell you over the phone - so it is important you ask about qualified, mid qualified, and non qualified rates too when choosing a company for credit card processing services.

Michael Rupkalvis manages The Transaction Group website. The site offers information about credit card processing and provides merchants with cheap credit card processing rates, along with excellent customer service.

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