Credit Processing

As mentioned, the rates and fees charged by a merchant account provider (the “provider”) can vary in numerous ways, including the manner in which the transaction with the customer is conducted by the vendor. When a vendor charges the credit card of a “regular” customer in what is called a “standard” transaction, they will be charged fees at the lowest qualified rate by the merchant account provider.

Exactly what constitutes a “standard transaction” will be defined by the provider, however it will generally be the “safest” method of performing the transaction. That is, there is little doubt as to the authenticity of the purchaser, they have been properly validated, etc.

The easiest way of thinking about qualified rates is to imagine transactions conducted over the internet, and transactions done in a retail store. Over the internet, the purchaser could be pretty much anyone, with credit card details they happened to come across, and the goods they are purchasing could be about to be delivered anywhere (even over the other side of the world). The potential for fraud is massive and so the vendor in this instance will usually get an unqualified rate.

Compare this to the transaction that happens in an actual store. While the potential for fraud is still there, the vendor is able to verify the identify the holder of the credit card (including that they actually possess the card and haven’t just found some random numbers on the internet), and there are also no concerns regarding shipping. Such a transaction will usually be deemed to be qualified by merchant account providers.

Mid-Qualified Rates

A provider will charge a mid-qualified rate in instances where the fully qualified rate can not be applied, or the rate does not apply to the particular transaction for some reason. This may be because of:

• a rewards credit card being used (i.e. shopping points, consumer points, air points, etc);
• a cash bank card being used (i.e. 1% of all purchases back in cash); or
• other reasons such as the credit card number being keyed in to the point-of-sale machine instead of the card being swiped (as they do for pizza deliveries).

In fact, processing transactions that involve reward and cash back cards can make up a very large percentage of the interchange costs involved.

Non-Qualified Rate

As discussed above, the non-qualified rate of a merchant account provider will usually entail the highest amount of interchange fees being levied on the transaction. A transaction may be classed as non-qualified for several reasons including:

• proper identity and address verification procedures not being performed;
• transaction settlement times not being adhered to (note that there may also be additional penalties, fees and other action taken as a result of this); and
• where information that would normally be provided in a “standard” transaction is not provided, either due to the special nature of the transaction or otherwise.