Frequently Asked Questions - Merchant Account Credit Card Processing

1.  Do I need a merchant account?

A merchant account offers many benefits to business owners. Getting a merchant account can help you expand your customer base, increase your sales, and cut-down on time-consuming tasks such as depositing cash and checks at your bank.  A merchant account isn't for everyone, though, and shouldn't be set-up on the spur of the moment.  Select a reputable merchant account provider and let them assist you in deciding the best processing solution for your business.  

2.  How do I set-up a merchant account?

To set-up a merchant account, just fill out our online application.  One of our friendly account managers will contact you within 24 hours to let you know if you pre-qualify for a merchant account and discuss the best possible solution for your business.  You may also contact us directly Monday-Friday, 9:00am-5:00pm EST.

3.  How do I know what company to choose?

Processing fees and services provided vary amongst providers.  We recommend selecting a few companies and comparing their rates and solutions.  After you've narrowed it down, research your top choice(s) on www.bbb.org and www.ripoffreport.com.  It is important to ensure that the merchant account provider you select is a reputable organization.  It is also a good practice to determine what is important to you in regards to your merchant account.  The 'cheapest' company may not always be the best solution.  Often, companies with the lowest discount rate may charge additional fees or they do not have quality customer service.

4.  What are the fees for a merchant account?

While fees vary amongst merchant account providers, the following fees are standard for a merchant account:

Qualified Rate (Discount Rate):

The qualified rate is the lowest rate a merchant can incur when accepting credit card.  The qualified rate is expressed as a percentage and is discounted from the gross amount of each credit card sale the merchant.  There is no guarantee that the transactions you process will be processed at the qualified discount rate.  Ideally, at least 80% of transactions should be processed at the Qualified Rate if your merchant account provider set your merchant account up correctly.
 
The following are the specifications for a Qualified Retail (swipe) Rate:

• The card must be swiped for authorization, and the full, unaltered contents of the magnetic stripe must be sent for authorization
• Only one authorization is allowed per transaction, and the transaction must be settled within 24 hours of the transaction date.
• The merchant must obtain an authorized signature on the receipt (except QSR qualified merchants)

What this means for merchants is that if they are 1) set-up incorrectly or 2) using old, faulty equipment, they may getting an extreme amount of downgrades that significantly increases what they are paying overall each month on their processing fees.

Mid-qualified and/or Non-qualified Rates

The mid-qualified rate and non-qualified rate, also referred to as Tier 2 or Tier 3 pricing or downgrades, is the percentage rate a merchant is charged whenever they process a transaction that does not meet the specifications of a qualified transaction.  If a transaction deviates from the specifications needed to be considered a qualified transaction, it is considered to "downgrade" from the lowest interchange rates available.  

The following types of transactions may be considered to be mid-qualified or non-qualified:

• Required data from transaction is 'lost' or 'missing'
• Merchant doesn't batch within 24 hours of authorizing transactions
• Keyed-in transactions (card is not swiped and therefore is automatically downgraded to Tier 2 pricing if set-up as Retail Merchant)
• Interchange for Corporate or Rewards cards is often higher than the qualified discount rate

All merchant accounts have a mid-qualified rate, a non-qualified rate or both in addition to the qualified discount rate.  It is important to ask your merchant account provider what your rate is on downgraded transactions.

Transaction Fee

A transaction fee is also referred to as an authorization fee or per item fee.  The transaction fee is a flat fee charged per transaction and typically ranges from $0.15 to $0.35 per transaction.  This fee is in addition to the discount rate.  

Address Verification Fee:  This a flat fee that is charged by processing companies for accessing their AVS to verify a transaction.  Most processing companies include this fee as part of the transaction fee.  Some will split the fee, however, to make their per transaction fee appear lower.  This fee is typically $0.05 to $0.10 per transaction.

Batch Fee

A batch fee is typically charged to a merchant each time the "settle" their transactions.  Settlement is essentially when the merchant is asking to be paid for their authorized transactions.  A merchant should batch every 24 hours to prevent downgrades.  Batch fees are usually $0.05 to $0.39 per batch.

Statement Fee:

The statement fee is sometimes referred to as a monthly account maintenance fee.  The statement fee is a detailed report provided to the merchant to show the merchant their transaction detail, total processing volume and the fees that corresponded.  The merchant is typically charged $5 to $15 for the detailed statement each month.

Monthly Minimum Fee

The monthly minimum is put in place to ensure that the costs for keeping a merchant on file are covered.  Even if a merchant does not process any volume there are still costs involved in maintaining a merchant account.  The monthly minimum is assessed by charging the difference between the total fees that were assessed against the merchant's minimum fee requirement.  If the merchant's monthly minimum is $25 and they were assessed $15 in processing fees, they will be charged an additional $10 to meet the monthly minimum of $25.  Monthly minimum fees typically range from $15 to $25.

Chargeback

A chargeback is not a set monthly fee.  It is assessed on a per occurrence basis.  A chargeback occurs when a customer disputes the transaction that appears on their credit card statement.  All merchants who accept credit cards open themselves up to the possibility of a chargeback.  Merchants can take actions to prevent themselves from authorizing fraudulent purchases and encountering chargeback's.  
A couple of ways that a merchant can be proactive are by taking the extra few seconds to check the customer's ID and keeping all signed receipts in a secure place for a minimum of one year from the transaction date.

5.  What is Interchange?

In the payments processing industry, interchange typically refers to the categories of base rates assessed by the Card Associations (Visa and MasterCard) for transaction related costs.  There are many levels (tiers) of interchange.  Each transaction, regardless of the merchant's discount rate, is charged interchange by the Card Associations. The most common interchange category assessed is for card-present, swiped transactions.  Interchange is published at www.visa.com and at www.mastercard.com.  

Interchange acts as the base rate on which banks mark up to their merchant account providers.  Merchant Account Providers, also known as Independent Sales Organizations or ISOs, then mark up the rate they receive from the bank so that they can be compensated for their services.  The resulting rate is known as the Discount Rate.  

When setting up a merchant account, it is essential that your Qualified Discount Rate covers the cost of Interchange that a majority of your transactions will qualify for.  For example, if you are set-up with a Qualified Discount Rate of 1.54% and your transactions are assessed an interchange rate of 1.64%, then your transactions will be downgraded to your Tier 2 or Tier 3 rate, also referred to as mid-qualified and non-qualified rates, in order to ensure that the cost of interchange is covered.

6. What kind of equipment do I need to process credit cards?

Equipment options vary based on the needs of the business.  Most retail businesses simply need an affordable and reliable solution that allows them to swipe the customer's credit card for authorization and settlement.  We offers a variety of credit card processing terminals at low-costs.  Merchants can buy or lease.

Restaurants or retail businesses that have a large inventory, multiple check-out lanes or multiple locations may be seeking a POS processing solution.  We will be happy to assist you in finding the smartest, most cost-effective processing solution for your business.
 
Businesses that are internet based, take payment over the phone or by mail will need a secure, software based program specifically for credit card processing.  We offer state-of-the-art processing technology to their merchants.  Global Gateway is the most secure payment gateway and virtual terminal available to merchants.

7.  How does a Credit Card get processed?    

There are seven stages identified in the processing of a transaction.  The stages of processing are:  (1) authorization, (2) merchant balancing, (3) capture, (4) clearing, (5) interchange, (6) settlement, (7) merchant payment/ACH.

Authorization is the first of seven stages in processing a bank card transaction.  In this stage, the merchant issues a request to charge the amount to the cardholder's card.  The request to charge a cardholder's card is made when the business owner either swipes or keys in credit card information into equipment that communicates electronically with the issuing (issues credit cards) and acquiring (provides merchant accounts) banks.  The authorizing processor references the cardholder's account status and credit limit and approves or denies the transaction.

The second stage is merchant balancing.  Merchant balancing is when the merchant's reconciles and closes out the days processing.  This is also referred to as "batching" or "settling" the merchant account.  If a merchant is set-up on a host-based capture system, the system may perform an auto-close procedure that automatically takes items from the terminal or PC and submits them to the clearing and settlement process.  This the best option because the merchant does not have to remember to batch out or rely on employees to batch at the end of the day.  

After merchants daily transactions are batched, the transactions are entered into the third stage of processing, capture.   Capture involves converting the authorized amounts of a transaction into a billable transaction record within a batch.  The data is then securely transmitted from processor to processor for clearing and settlement.  

Clearing is the fourth stage of processing a transaction and is the process of submitting transactions to Visa or MasterCard.  The fifth stage of the seven stages of processing is interchange.   In this stage, Visa and MasterCard have been presented the transactions by the processor.  Visa and MasterCard then calculate the service fee by individual transaction and determine the net position of due/to and due/from monies.  They then sort the transactions by issuing bank identification number and send the transactions to the issuer for posting to the cardholder account.

The sixth stage in processing a transaction is settlement.  Settlement is the process of transferring funds for sales and credits between the acquiring (merchant) banks and issuing banks, including the final debiting of a cardholder's account and the crediting of a merchant's account.  In this stage, Visa and MasterCard calculate the interchange rate due on each transaction.  At this time they determine which transactions qualify for certain rates and apply the appropriate rate based on the submitted criteria.  (Some transactions can be downgraded to a higher rate if all of the qualifications were not met.)  
Visa and MasterCard then determine the net of monies due/to and due/from each member and then make a wire transfer of funds to the members' bank accounts each day.  For the acquiring bank, the net calculations include less interchange, less chargebacks, less fines, resulting in a net credit to the acquirer.  For issuing banks, the net position will be interchange plus chargebacks less fines less sales, resulting in a net debit to the issuer. The categories for interchange vary as well as the compliance criteria for each level of interchange.  Interchange criteria and rates can be found at www.visa.com and at www.mastercard.com.   Rates and criteria vary and change frequently.  

Following settlement is merchant payment, the seventh and final stage of processing a transaction.  Merchant payment, also called merchant ACH, is when the acquiring bank reviews the deposit amount due to the merchant and releases the deposit to be posted to the merchant's account.  This process occurs after the acquirer has been reimbursed for the transaction amount so as not to incur any float.