Is Your Discount Rate Really a Discount?
by jon saluk
A common complaint amongst business owners is that the fees associated with accepting major credit cards force you to question whether or not it’s worth accepting credit cards at all. However, statistics show that customers that make purchases using a credit card spend 50 more, shop more often, and will choose merchants by whether or not they accept credit cards for payment. So the answer is, in today’s business climate, you must accept credit cards. The real question is, “How do ensure I’m getting the best discount rate?” The answer requires a little bit of explanation.First, let’s just define “Discount Rate”. This is the fee you (the merchant) pay to the (credit card) issuing bank on each transaction. This is not to be confused with the Federal Reserve Discount Interest Rate (FRDIR), which is the interest rate the Issuing Banks pay for borrowing money from the Fed. However, this is a major factor in determining your Discount Rate. Actually, about 85 of your Discount Rate fees go to the issuing banks. Since all banks borrow money at the same rate, you are unlikely to see wide variations in the rates they charge to merchant accounts (so if you see an advertised rate that is far below average, don’t believe it!). The real area to concentrate on is what is known in the industry as “Page 2” fees (because they are usually found on page 2 of your statement). These are all the other transaction and account administration fees and surcharges that get added to the Discount Rate. Some credit card processing companies have as many as 27 different fees that make up your total fee! For the sake of brevity, we will look at the 4 most common types of transactions:Discount rate - face to face swiped card with the least risk for fraud as you can verify signature with other forms of ID.Mid-Qualified - MO/TO (mail order/telephone order), internet or keyed transactions which have a slightly higher risk factor because you are not capturing the card via a swipe, risk can be reduced by utilizing antifraud features such as AVS (address verification), CVV(3-digit code on back of card)
Tell others about
this page:
Comments? Questions? Email Here