We are different!
This article points out the tactics used by other companies to trick merchants into thinking they are getting a better credit card processing rate than they are. It also points out our obligations here at ADK Merchant Services (ADKMS) to educate our clients (merchants and sales agents) so that they can protect themselves from double talk.
ADKMS has decided to post this article for all to see, that way anyone who has a merchant account can begin to learn how to best protect their interest.
While ADK Merchant Services has often expressed that we are different, we think the benefit of how we do business gets convoluted when we are out there trying to compete with companies offering rates of 1.59, 1.29, and other rates that we know the merchant is not really getting. We would like to take a moment to emphasize HOW we are different; how we believe in doing business, and what that means for OUR merchants!
One of the biggest problems, for merchants and our sales agents, is that merchants mistakenly believe that the discount rate is the only fee that they need to worry about. Merchants believe that the lower the discount rate, the better. This is far from reality. A lot of merchants are not properly educated about downgrades, surcharges, mid-qualified and non-qualified fees, and other monthly fees. Most merchants also do not understand where the discount rate comes from. One of the biggest deceptions we have seen is Merchant Services Providers (MSP) pricing the merchant’s qualified rate low knowing that the majority of the transactions are downgraded and that merchants are paying higher rates on most of these transactions.
Typically only 20% to 30% of the merchant’s credit card transactions are qualified while the rest are split between downgrades and check cards rates. These card transactions are also commonly known as Debit, World, Rewards, Corporate, and Purchase cards along with Card Not Present transactions. These card transactions all constitute downgrades or surcharges depending on the processing companies pricing structure and terminology. It is clear that the Credit Qualified Rate is not all that matters. Unfortunately, Merchant Services Providers in our industry WANT merchants to receive downgrades. Downgrades produce a bigger profit margin than Credit Qualified transactions.
This is NOT the approach we believe in taking. THINK ABOUT IT…Do we make more profit if we ‘scam’ a merchant for a few months…then lose the merchant to a competitor? Or, do you make more profit if we price the merchant fair, educate the merchant on their pricing, and the merchant does business with ADKMS for the next 10, 20, or 30 years? We may “lose” a few dollars by pricing the merchant properly and making less on the downgrades; but, our profit will multiply quickly and exponentially because our merchants will stay with ADKMS. The average attrition rate in our industry is over 35% in the first year. That means, if a MSP signs up 10 merchants a month, 3.5 of them will leave within a year’s time frame. Our attrition rate is less than 5%. We are a business partner of each and every merchant. We don’t profit unless our merchants do.
This is just the TIP of the iceberg. ADKMS has so much information we can share with you the merchant…all backed by materials we possess from Visa/MC and in relation to our bin and acquiring license. We have materials that PROVE to our merchant how their transactions will be qualified. All MSP’s pay interchange which is our cost along with the Acquirer cost. The Interchange rates are on Visa.com and Mastercard.com for all to see.
Also, here is a basic explanation for your convenience on Credit Qualified Rates, Downgrades and Check Card Rates:
Credit Qualified Rate (Discount Rate): The credit 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 30% of transactions should be processed at the Qualified Rate if your MSP set your merchant account up correctly.
The following are the specifications for a Credit 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)
Downgrades: The downgrades, also referred to as mid-qualiied rate, non-qualified rate, Tier 2, Tier 3, Tier 4, or surcharges, are the percentage rate a merchant is charged whenever they process a transaction that does not meet the specifications of a credit 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 downgrades:
• 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 if merchant is set-up as Retail Merchant)
• Interchange for World, Purchase, Corporate or Rewards cards is often higher than the qualified discount rate
Check Card Rates: Check card rates cannot be explained here in one paragraph. The industry pricing structure has changed dramatically since the Durbin Act. We encourage you to read our article on the Durbin Act. What we can say about Check Card Rates is that they are much lower than the Credit Qualified Rate. And they are typically 40% to 60% of all transactions and most MSP’s don’t pass along the lower transaction costs.
All merchant accounts have downgrades and check card rates in addition to the credit qualified rate. It is important to ask your MSP what your rate is on downgraded and check card transactions.
