Is Your Discount Rate Really a Discount?
By: accpconline

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) & only shipping to billing address.
Non- Qualified - usually corporate or business & government cards regardless of keyed or swiped which carry the risk of someone using the card for unauthorized type purchases,
Rewards - the newest addition as of April 2005 this covers all cards that carry some reward where the cardholder accumulates points for dollars charged, such as frequent flyer miles, gifts, vacations etc.

Also included on page 2 are the fees charged for batches, ACH of funds, transactions, statements, monthly minimums, club and maintenance fees. Most merchants do not factor in these fees when computing their true or net discount rate. As you will see shortly these fees definitely matter.

To calculate your net discount rate you would need to add up all your fees and then divide that number by the total transactional sales volume (i.e. all your Visa & MasterCard sales). This is your net discount rate and I am sure it is a lot higher than what you thought your discount rate was. The only way to tell if this number is truly a "great" number is to have your statement reviewed by a trusted merchant account provider as there are too many variables to list that factor into the equation.

Here are a few tips you can use to evaluate if your merchant services are appropriate for the type of transactional business you have:
• Today 30% of transactions are done using a bank debit card with usage increasing everyday. If your average ticket is above $50 and you are not equipped with a pin pad you are probably substantially overpaying for every debit transaction.
• Ideally you want to swipe the highest percentage of transactions. This affords you the lowest discount rate and virtually reduces charge backs to zero. If you are a contractor, sell at trade shows, taxi or limo, or any business where you are face to face with your customer but your terminal is back at the office or home and you key in most of your transactions it might be beneficial for you to invest in a wireless terminal that can be used anywhere you have a cell signal. These terminals offer the ability to accept debit cards as well and the savings from mid to discount rate might offset the cost of the terminal & wireless fees.
• If you are a face to face brick & mortar business and more than 5-10% of your business is being surcharged you may not be set up properly for your business type.
• If you are paying monthly minimums, annual, ACH or batch fees they can usually be negotiated away.

Article Source: http://www.ArticleJoe.com

Jonathan S Saluk is a Business Development Partner with American Credit Card Processing Corporation with national headquarters at 133-C New York Ave Huntington NY 11743. ACCPC provides all merchant account services: check guarantee, gift loyalty cards, ATM's & credit card processing. ACCPC is active in the following organizations-Long Island Association, Hauppauge Industrial Association, Electronic Transaction Association, Business Networking International, National Association of Payment Processors, Huntington, Northport, Port Jefferson & Three Village Chambers of Commerce. Jonathan can be contacted at either 516-250-9536 or jonathan.saluk@4accpc.com or for more info www.accpconline.com. To stay abreast of current trends subscribe to free monthly newsletter.

Please Rate this Article

5 out of 54 out of 53 out of 52 out of 51 out of 5 

Not yet Rated