Credit Card Processing Company

 
Broker Merchant Services
 

Credit Card Processing

Most businesses will need a way to process credit cards for their customers. There are numerous options available and Broker Merchant Services is ready to help you find the best value service for your business!

We offer the beneficial option of 24 hour/ Next Day Funding; please inquire.

Swiped Transactions

A transaction is swiped when a merchant slides a credit card through a terminal or card reader and the cardholder information is electronically captured from the magnetic stripe on the back of the card. Restaurants, gas stations, and beauty salons are examples of businesses that swipe credit cards.

Risk is the primary factor in determining the discount rate paid on a specific transaction - so merchants that "swipe" credit cards generally qualify for a lower rate than merchants that key transactions (see below for an explanation of what a "keyed" transaction is). When a merchant swipes a card they should also be checking the signature and ID of the cardholder which also helps reduce the risk of fraud. The possibility of charge backs or disputed transactions is greatly reduced as well on swiped transactions, since the customer can actually see and feel the product when buying vs. just relying on a description or picture on a website.

Keyed Transactions

A transaction is keyed when a merchant manually enters a transaction by using the keypad on a terminal, pos software, phone, or an online payment gateway. Internet, mail, and phone merchants are examples of merchants that key transactions. Since the majority of "keyed" transactions are processed with the card not being present at point of sale, merchants pay a higher discount rate to offset the higher risk associated with these types of transactions.

Discount Rates & Fees

A Merchant Account has a variety of fees: some periodic, others charged on a per-item or percentage basis. The discount rate is comprised of a number of dues, fees, assessments, network charges and mark-ups merchants are required to pay for accepting credit and debit cards, the largest of which is the Interchange fee.

The interchange fee is a schedule of rates which are set by Visa and MasterCard. Interchange fees vary depending on card type and the circumstances of the transaction. For example, if a transaction is made by swiping a card through a credit card terminal it will be in a different category than if it were keyed in manually.

A discount rate is a percentage of the total transaction amount which the processor charges the merchant to process the credit card transaction. If the discount rate is 2.50%, for example, the discount rate fee is $2.50 for a $100.00 charge. The percentage varies (qualified, mid, and non- qualified) and is influenced by numerous factors such as how the card is processed and the type of card. When a transaction falls into one of these higher rate categories, the transaction is considered downgraded. Here are the more popular price models, simply click on them for more information:

3-Tier

The 3-Tier Pricing is the most popular pricing method and the simplest system for most merchants, although the new 6-Tier Pricing is gaining in popularity. In 3-Tier Pricing, the merchant account provider groups the transactions into 3 groups (tiers) and assigns a rate to each tier based on a criterion established for each tier.

Qualified (swiped)
A qualified rate is the percentage rate a merchant will be charged whenever they accept a regular consumer credit card and process it in a manner defined as "standard" by their merchant account provider using an approved credit card processing solution. This is usually the lowest rate a merchant will incur when accepting a credit card. The qualified rate is also the rate commonly quoted to a merchant when they inquire about pricing. The qualified rate is created based on the way a merchant will be accepting a majority of their credit cards. For example, for an internet merchant, the internet interchange categories will be defined as Qualified, while for a physical retailer only transactions swiped through or read by their terminal in an ordinary manner will be defined as Qualified.
Mid-Qualified (hand-keyed, some Rewards)
Also known as a partially qualified rate, the mid-qualified rate is the percentage rate a merchant will be charged whenever they accept a credit card that does not qualify for the lowest rate (the qualified rate). This may happen for several reasons such as:
  • A consumer credit card is keyed into a credit card terminal instead of being swiped.
  • A special kind of credit card is used like a rewards card or business card.
  • A mid-qualified rate is higher than a qualified rate. Some of the transactions that are usually grouped into the Mid-Qualified Tier can cost the provider more in interchange costs, so the merchant account providers do make a markup on these rates.
  • The use of "rewards cards" can be as high as 60% of transactions. So it is important that the financial impact of this fee be understood.
Non-Qualified (Corporate, Government)
The non-qualified rate is usually the highest percentage rate a merchant will be charged whenever they accept a credit card. In most cases all transactions that are not qualified or mid-qualified will fall to this rate. This may happen for several reasons such as:
  • A consumer credit card is keyed into a credit card terminal instead of being swiped and address verification is not performed.
  • A special kind of credit card is used like a business card and all required fields are not entered.
  • A merchant does not settle their daily batch within the allotted time frame, usually past 48 hours from time of authorization.
  • A non-qualified rate can be significantly higher than a qualified rate and can cost the provider much more in interchange costs, so the merchant account providers do make a markup on these rates.

4-Tier

As a result of the Wal-Mart Lawsuit and to compete against PIN-based debit cards (which are processed outside of the Visa and MasterCard networks), Visa and MasterCard lowered the interchange rates for debit cards well below those for credit cards. Some providers can pass on the lower cost of these cards directly to merchants. Consequently, the 3 tiers programs have added 2 classifications for debit cards that are processed without a PIN or with a PIN for a total of 6 rate classifications.

Checkcard/ Off-line Debit
Functionally, a debit card (or check card) can be called an electronic check as the funds are withdrawn directly from either the bank account or from the remaining balance on the card. Offline Debit Cards have the logos of major credit cards, and are used like a credit card. These often are subject to a daily limit and transactions can take up to 3 days to be reflected on the user’s account balance. Merchants pay lower fees on online debit transaction as compared to credit, or offline debit transaction.
Qualified (swiped)
A qualified rate is the percentage rate a merchant will be charged whenever they accept a regular consumer credit card and process it in a manner defined as "standard" by their merchant account provider using an approved credit card processing solution. This is usually the lowest rate a merchant will incur when accepting a credit card. The qualified rate is also the rate commonly quoted to a merchant when they inquire about pricing. The qualified rate is created based on the way a merchant will be accepting a majority of their credit cards. For example, for an internet merchant, the internet interchange categories will be defined as Qualified, while for a physical retailer only transactions swiped through or read by their terminal in an ordinary manner will be defined as Qualified.
Mid-Qualified (hand-keyed, some Rewards)
Also known as a partially qualified rate, the mid-qualified rate is the percentage rate a merchant will be charged whenever they accept a credit card that does not qualify for the lowest rate (the qualified rate). This may happen for several reasons such as:
  • A consumer credit card is keyed into a credit card terminal instead of being swiped.
  • A special kind of credit card is used like a rewards card or business card.
  • A mid-qualified rate is higher than a qualified rate. Some of the transactions that are usually grouped into the Mid-Qualified Tier can cost the provider more in interchange costs, so the merchant account providers do make a markup on these rates.
  • The use of "rewards cards" can be as high as 60% of transactions. So it is important that the financial impact of this fee be understood.
Non-Qualified (Corporate, Government)
The non-qualified rate is usually the highest percentage rate a merchant will be charged whenever they accept a credit card. In most cases all transactions that are not qualified or mid-qualified will fall to this rate. This may happen for several reasons such as:
  • A consumer credit card is keyed into a credit card terminal instead of being swiped and address verification is not performed.
  • A special kind of credit card is used like a business card and all required fields are not entered.
  • A merchant does not settle their daily batch within the allotted time frame, usually past 48 hours from time of authorization.
  • A non-qualified rate can be significantly higher than a qualified rate and can cost the provider much more in interchange costs, so the merchant account providers do make a markup on these rates.

Cost+ (Also known as Interchange Plus or Pass-Through)

Some providers offer merchant account services priced on an "interchange plus" basis. These accounts are based on the "interchange" tables published by both Visa Visa Interchange and MasterCard MasterCard Interchange. This type of pricing creates a discount rate by adding interchange rates, fees, assessments, markups and other costs. "Cost Plus Pricing" is an industry term that refers to a pricing scheme that essentially consists of Interchange and assessment fees plus a processing fee that the processor charges for each transaction. Basically it's pure cost/ interchange "pass-through" on every transaction. Cost + is usually most appropriate for merchants with high transaction volume and low average tickets.

Interchange Fees + Assessments PLUS Processing Fee = Cost Plus
Cost = Interchange Fees (Discount + Item) + Assessments
Plus = Processing Fee, either transaction fee, basis points or can be both
Assessments Fees = Basis-Points & Trans-Cost that’s paid back to the Visa/ MC Assoc on every transaction
Visa = .0925%
MC = .0950%

Note: Interchange fees (calculated on net sales) are the fees associated with a bankcard transaction based upon the qualification level of the transaction. Interchange fees are paid daily to the Issuer. Assessments are fees associated with a bankcard transaction regardless of the qualification level. Assessment charges are paid to the Association, Visa or MasterCard.

References

Visa Interchange Rate Table.
Mastercard Interchange Rate Table.
MasterCard Merchant Rules PDF Guidelines
Visa USA - Accepting Visa Guide