Merchant Account Creative Practices

Debit and Check Cards are very commonly used cards these days, and make up a large percentage of transactions merchants are processing. Frequently only one rate is quoted to the merchant, and the debit/check cards are being processed as a regular Visa/MasterCard/Discover card and the merchant is being charged the same higher rate. The cost for processing a debit transaction is in most cases a significant amount less than that of a credit card transaction. For merchants who accept debit and check cards in addition to credit cards there should be 2 sets of rates so they pay a reduced amount on the debit/check cards, since they are not as expensive to process. If only one rate was quoted the merchant is paying too much to process the debit transactions.

Every transaction has a “true cost”. This is the fee charged by Visa/MasterCard to approve/authorize the transaction. The merchant service provider then adds their cost. This is the Qualified Discount Rate that the merchant pays for each processed transaction.  (See Hidden Fees for more information.)

You will find that some of the merchant processing companies offer a lower rate than the “true cost” rate on all credit card transactions. If you are wondering how they do this it is actually pretty simple, they charge the same rate for processing all debit card transactions that they charge for a regular credit card transaction. Since at least 50% of all transactions are debit-PIN based this means that the service provider is more than recouping the losses incurred on credit card transactions. On quick review, the lower rates look good on the contract when it is time to sign, but in actuality its better to pay the true rate for regular cards to get the lower debit rate, it will be much more beneficial in the long run. Make sure you know what you are paying for. If a deal sounds too good to be true it probably is.