Qualified, Mid-Qualified, Non-Qualified

Most merchants confuse "merchant processing discount rates" with "cost of accepting credit cards". They think the lower the number, the less their cost. Actually, as we discussed in the TOP TEN MISTAKES section, the relationship is quite the opposite.

The credit card processing programs advertising the lowest percentage numbers almost always turn out to be the most expensive programs, not the cheapest.

This is because Merchants actually pay multiple discount rates - plural, not just one. Interchange provides for many different cost factors for many different kinds of card types and processing scenarios. The low advertised teaser discount percentage is just one of many different rates the Merchant will pay. In fact, very few if any of his transactions will qualify for this low number, most will turn out to be much more expensive.

When DOES the Merchant pay the low discount percentage quoted?

The low teaser number is called the "Qualified Rate". In order to qualify for this number, the transaction generally must meet ALL, not just some, of these criteria:

  • A personal Visa or MasterCard.
  • Of domestic origin.
  • Swiped through a mag reader.
  • Settled in a timely manner.
  • Several other criteria too numerous to mention.

When does the Merchant pay a higher percentage than quoted?

If the transaction does not meet ALL of the above criteria, then it will downgrade to Mid-qualified or Non-qualified (see GLOSSARY) and pay a higher discount rates. Downgrade reasons would include:

  • The is a business or corporate card, not a personal card.
  • The card is a government issued purchasing card.
  • The card is of foreign origin.
  • The card is NOT swiped but is key entered.
  • The card is a Level II or Level III purchasing card.
  • The card is a Rewards card.
  • The card is not settled in a timely manner.
  • A voice authorization was involved.
  • AVS (Address Verification) mismatch.
  • Card incorrectly processed by Merchant.
  • Out of date or noncompliant terminal and/or software.
  • Numerous other possible reasons.

This means that the majority, sometimes all, of the typical Merchant's Visa and MasterCard credit card transactions, will be charged to the Merchant at a much higher discount percentage than what the Merchant was quoted as his "Qualified Rate". Among others, the Merchant will pay extra discount fees for each and every one of all of the following transaction types:

  • Business and Corporate Cards: Visa or Mastercard credit cards issued in the name of a company or business, not an individiual.
  • Government or Corporate Issued Purchasing Cards: Specialty Visa or MasterCard branded cards designed to substitute for government or corporate requisition forms. Level II and Level III cards are similar in nature.
  • Rewards Cards: Visa and Mastercard branded cards such as the Citibank "Thank You" card that earn points or other prizes with each consumer purchase.
  • Most Foreign Cards: Charges made on Visa and Mastercard branded cards issued by institutions outside of the United States.
  • Key Entered Transactions: Card transactions not swiped through the credit card data reader for any reason. It could be as a result of a sale made over the phone or by mail (cardholder not present), or the result of a bad card reader or damaged magnetic strip on the back of a credit card which results in the clerk having to 'key in' the transaction manually. The reason does not matter; if the card is not swiped regardless of the reason, the Merchant will pay a higher rate.
  • Late Settlement: If the batch in which a particular transaction resides is not Settled in a timely manner as set forth in the Merchant Agreement, downgrade surcharges to the Merchant will apply.
  • Voice Operator Authorizations: Most authorizations obtained externally from a voice operator, generally as the result of a "Call Center" prompt on the terminal, as opposed to a terminal generated authorization.
  • Many other scenarios too numerous to mention in an ever-changing scenario.

The point is, it's very easy and not uncommon for a slick salesperson to entice Merchants who tunnel-vision only on rate with a low number that few if any of his transactions will actually qualify for, then turn around and gouge him with inflated numbers in the Interchange categories where the Merchant transactions DO fall within. That's why a Merchant should NEVER judge a credit card processing program solely on the quoted discount percentage. One needs to know ALL the rates involved, not just the teaser number.