Discount Rates

Discount rate is the generic term used to describe the fees associated with processing credit card transactions. They are a lot of different categories for fees, each depending on the type of business and the amount of each sale. Most companies will offer you what is called a retail qualified rate. This is the lowest rate you will ever be charges at. Then if the transaction doesn't meet certain qualification a certain percentage would be added on top of that base rate.

Lets use the following example of how the discount rate would be calculated. Most merchant account providers will set you up with a three teir approach to the merchant accounts. There are actually dozens of different possibilities, but most simplify it down to three:

Qualified = 2.0%
Mid-Qualified = +1.5%
Non Qualified = +2.0%

What this means is the following, if the transaction goes through as qualified you will receive the qualified rate, so your final rate would be:

Qualified: 2.0%

If the transaction gets downgraded to a mid-qualified transaction, for instance if you key-in the card instead of swiping it, the the final rate is calculated as follows:

Qualified + Mid-Qualified: 2.0% + 1.5% = 3.5%

If the transaction is downgraded further to a non-qualified transaction then the final rate would be:

Qualified + Non-Qualified: 2.0% + 2.0% = 4.0%

So in these examples the possible buckets which your transactions would fall into are 2.0%, 3.5% or 4.0%.

Along with these costs are the transaction fee costs. Each processed transaction incurs a fee. Most of the time this fee is around $.25, but in the same manner as the discount rate, this fee may go up if the transactions are downgraded.

The following table shows possibilites of what the discount rates and fees would be on a $100 purchase using the rates above plus adding .10 for a mid-qualified transaction fee and .15 for a non-qualified transaction fee.