We do.  Well, we saw recent forum post talking about the efforts of small businesses owners to understand what they are paying in credit card processing rates. And, since we talk about this all day long, thought we could provide a little insight.

To be frank, I’ve seen some of the statements that customers have sent us and, yes, they can be confusing!  Alas, as we choose and work with partners that provide low credit card processing rates to small businesses, we don’t have much control over how the rates are delivered—those practices and rate structures have been around much longer than PaySimple has.

BUT, we do help wherever we can to let small business owners learn what they are paying and how to get the lowest rates.  Here’s a quick guide to some of the most important facets of what makes up your rates:

Card-Present vs Card-Not-Present – It’s SO important for you to know what types of credit card payments your business will be taking.  Do most of your customers pay you in your store?  Do you even have a storefront?  If not, and you rely on mailed, over-the-phone, or online payments, then you’ll likely want to set up a Card-Not-Present merchant account.  This means your account is set up to accept where no physical card is being swiped, and instead, the card information is being keyed in — whether that be to a credit card terminal or online interface (like PaySimple’s).

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Here’s the good news and bad news about Card-Not-Present merchant accounts.  Bad news – your base rate is going to be higher than if you signed up for a Card-Present (or swipe) merchant account.  (But it’s not really bad news if you read on…)  Good news – If you’re going to be mostly accepting Card-Not-Present payments anyway, you will typically pay a lower rate for those transactions than you would for a merchant account set up for swipe payments.   A keyed-in transaction on a swipe account will incur a surcharge, as it is considered a Mid-qualified or Non-qualified transaction on a swipe account.  However, on a Card-Not-Present merchant account, a Qualified keyed-in payment will receive your lowest qualified rate.  See below for more information on Qualified and Non-qualified payments.

So why are card-not-present rates inherently higher?  Processors and risk-assessors assume that there is less risk associated with a business swiping a credit card than keying it in.  Why?  When a card is swiped, a person is present—where the merchant can check ID and signature.  When a person is not present, the door is opened wider for consumer fraud.  However, when you’re setting up a Card-Not-Present merchant account, these factors are taken into consideration during the underwriting process, which leads to a lower base rate for keyed-in payments.

Qualified vs Non-Qualified credit card rates — The most common forms of rate structures for credit card rates are two or 3-tiered, where each credit card transaction is deemed Qualified, Mid-qualified, or Non-qualified (or just Qualified and Non-qualified for 2-tier).  Each and every transaction you accept is classified into one of these three categories, and is the basis for the credit card rate you see on your statement.  As a general rule, your Qualified transactions are going to be “standard” cards (without any consumer or corporate rewards associated with them) accepted in the “standard” method expressed in your merchant processing agreement (this is where that Card-Not-Present setup comes into play).  Mid and Non-Qualified transactions are anything outside of that, which can include rewards cards, keyed-in payments (for swipe accounts), AVS (Address Verification Service) does not match or is not performed, not all required fields are entered, or the payment was entered in a late batch (the payment was sent to the processor 48 hours or more past the time of the authorization).

Some good news for PaySimple customers:  AVS is automatically performed on every credit card transaction run; required fields to have the opportunity to get the qualified rate are marked as required in our interface; and we process all credit card payments in real-time (no batching).

What makes up the rate that you’re paying? – Most rates are made up of three parts:

  • Interchange – Goes to the bank that issued the card, and is typically made up of a flat rate plus a percentage of the sale (average 1.7%).
  • Assessments – Go to card network (Visa, MasterCard, Amex, etc.) and average about 30-40 basis points.
  • Processor fees – Fees involved with providing the service, risk assessments, the type of transaction, and the size of the transaction.  This portion includes the margin between the total rate and the two previous parts, along with any incidental fees, like chargeback or statement fees.

There are a lot more intricacies of what makes up a credit card rate, but hopefully this information gets you off to a good start.  If you interested in learning more about  merchant accounts, check out our previous post on setting up a merchant account .  And as always, feel free to comment and share any insights you may have.

If you’re interested in learning more about PaySimple’s merchant account processing, check out our short 2-minute demo video.

Sarah Jordan

Sarah Jordan

Sarah Jordan is the VP of Marketing for PaySimple, the leading provider of service commerce solutions for SMBs. At PaySimple, Sarah leads the company’s brand, acquisition, lifecycle, and product marketing strategies, and has been an integral player in growing the company from a fledgling startup to a leading SaaS platform, serving over 15,000 businesses across the country. She loves live music, being outside, great food, and hanging out with her husband, little boy, and dog.

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