Merchant Processing Rates are determined by several variables:
- Wholesale rates* (percentages) given to the processor by Visa/Mastercard/Discover/American Express based on which card the buyer is using to purchase and whether the card if being accepted Card Present or Card Not Present.
- Assessments & Account Fees are added by Visa/MasterCard/Discover/American Express depending on the type of credit card your business accepted from your buyer! (Always check your application for these fees and assessments).
- The “Processor” adds a percentage on top of the wholesale rate for the actual processing of the transaction. The “Processor” can also add account “Fees” for a variety of different services.
There are 4 basic Merchant Processing Models available in the industry:
Flat Rate Model: All rates put together into a single flat rate for all transactions (either swiped or key-entered). This rate is, naturally, quite a bit higher than what you’d pay under other models, but some companies have no monthly fees which attracts merchants that do not have a consultant that can explain which method is best.
Tiered Pricing Model: Tiered pricing combines a vast number of processing rates into three basic tiers: qualified, mid-qualified, and non-qualified. Understanding which tier each transaction fall into depends on a number of criteria, which are set by each processor. These include things such as card-present vs card-not-present transactions, whether the transaction was processed on the same day it occurred, and which one of a host of possible categories the items purchased fall into. Tiered pricing also leads to a very deceptive marketing; a sales person only mentions the lowest possible rate, knowing that most transactions won’t actually be qualified, and will process at a much higher rate.
Interchange-Plus Pricing Model: This is a much more transparent pricing model, because the processor discloses the wholesale rate, the negotiated processor rate, and any fees that can be associated with each transaction. This model can make your statements harder to read, unless you can reach out to your LOCAL rep with any questions. In most cases, interchange-plus pricing rate model is usually lower overall than Tiered Rates and Flat Rate Models