Merchant Card Service - Merchant Options

Understanding your merchant provider's rates and fees
All banks and merchant providers require "transaction fees" from you for accepting credit cards. Typically, these fees are broken down into 3 categories: a discount rate, a transaction fee, and monthly fees. For the bank's purposes, a transaction is usually defined as any communication between you and the processing network. A "credit" transaction is treated the same as a regular transaction. Settling a batch is usually considered a transaction as well, as it involves communication with the processing network.

DISCOUNT RATE AND TRANSACTION FEE REVIEW

Discount Rates - when a credit card transaction takes place, the merchant is charged a percentage fee as well as a per item transaction fee for interchange. The Acquirer then charges an additional percentage mark-up for each sale. The additional percentage mark-up is what is termed as the discount rate , or income paid to the Acquirer to cover its costs and generate a profit.

Bundled & Unbundled Rates - discount rates can be "unbundled" or "bundled". An unbundled rate occurs when then merchant you are charged a percentage plus a separate transaction fee. A bundled rate occurs when the transaction fee is lumped into the percentage rate to help merchants who process at high volumes but with low average ticket amounts (i.e. restaurants).

Basis Points - newcomers to the credit card industry are often confused about the definition of a basis point. It's actually pretty simple: a basis point is 1% of 1%. When a bank pays interest on a Certificate of Deposit, it might pay a 6.53% rate. 6.53% equals 653 basis points (in other words, each percentage point is equal to 100 basis points). You might also hear about a "basis point increase". If the bank increased its rate by 12 basis points, you would see an increase from 653 to 665 basis points or 6.53% to 6.65%.

Transaction Fee - this fee is generated by the Front-End processor who provides the communications systems that connect the merchant's point-of-sale device to the Front-end's credit card authorization and data capture networks. Front-end networks perform authorization and capture of merchant credit card transactions. For this merchant service, the Front-end processor charges a per transaction fee. This fee ranges anywhere from $0.10 to $0.20 per transaction depending on merchant type, transaction type, etc.

Computing Qualified Transaction Costs - Discount Rate Explanation

Step One:

Per item fee should be divided into your average ticket to convert the fee to a percentage.

. Divide $0.25 by $33.00 (average ticket size) = 0.76% (Basis Points - rounded)

Or

. Divide $0.25 by $200.00 (average ticket size) = 0.13% (Basis Points - rounded)

Step Two:

You then add your or the quoted discount rate & the per item basis point calculated above.

. You as a Merchant have a $33.00 average ticket with a current discount rate of 1.85% for (card present or Swiped transactions) plus $0.25 or 0.76% for a total of 2.61%

. The Merchant has a $200.00 average ticket with a current discount rate of 1.79% plus $0.25 or 0.13% for a total of 1.92%.

The above example can be computed with your Mid & Non Qualified rates and also with your check card rates too.