Shopping for the best merchant account rate is like shopping for anything else: you want the best value at the lowest price. Don't make the mistake of assuming that you'll get the same rate at every bank. Let's look at some of the terms that are important in credit card transactions.
Discount rate. The discount rate is the sum that's deducted and paid to the credit card company and the issuing bank. It usually ranges from 2.5 percent to 5.5 percent of your credit sales, depending upon the volume of your sales and the typical transaction size. The discount rate is comprised of the transaction charges, the interchange rate, and the transmission costs.
Transaction charge. The transaction charge is essentially the profit that the processing network makes. It's usually included in the discount rate, but it may be charged separately. The transaction charge is really the only element of the discount rate that you can negotiate. Ask each bank you visit about its transaction charge and then compare the numbers. If one bank has a transaction fee higher than another bank, ask the bank why the fee is higher. You should find out if you get any additional services for the higher fee.
Rate you will pay. In addition to the transaction charge, there are a variety of charges that further reduce the amount you get when you accept a credit card. These charges can vary depending on several factors, and the rules are complicated:
- Type of business.
- Interchange rate
- Surcharges
- Transmission costs
There are two good sources for information regarding exactly how much it's going to cost to accept various credit cards. First, visit the Visa and Mastercard websites to get an idea of what current rates are, and what factors determine which rate will be applied. Second, discuss the pros and cons of accepting each type of credit or debit card with the bank you intend to use to process those transactions.
Also remember that the costs that you incur when you open your business can change over time. There is no long-term contract holding the rate you pay constant. Just as consumers face changes in the rates they pay for using a credit card, merchants face changes in the cost of accepting a card.