Credit Card Merchant Account Discount Issues

Understanding a credit card merchant account processing activity, statement or a report can be daunting at best of times. There is no accepted standard for displaying the various potential fees that can be charged to retailers. To simplify pricing models, many providers offer a bundled type of rate where all assessed fees are put together into one combined rate, usually known as as a discount. The problem is that the discount rate typically hides the real costs of payment processing.

In the worst case, bundled credit card merchant account arrangements feature many additional fees, which are completely invisible to the client. The purpose of this arrangement is to show the potential problems that can arise from such agreements.Examining some typical, payment-related, fee-billing processes for the two most commonly used credit and debit card networks, Visa and MasterCard, we will examine a whole range of problems associated with bundled discount rates compared to the known alternative which is the interchange-plus credit card processing fee structure.

Many clients agree to a discount-based agreement. In that, the credit card merchant account processor charges a percentage of the gross sale's amount. These agreements can also feature a fixed per-item fee for each sale. A client, however, cannot possibly know what percentage, or dollar amount for that matter, they are paying to each of the participants in the transaction cycle. The largest portion of the discount is made up by the charges that processing banks are mandated to pay the Card Associations and issuers to facilitate a client's transaction.

For instance, the client agrees with its processor to pay a discount of 2.75 percent, for "Qualified" Visa, Discover and MasterCard transactions. Qualified is usually defined as the lowest rate a client can get for a transaction. That discount is in essence paid out to several different parties. The largest percentage, let's assume 2.1 percent, is paid out to the card's issuer in the form of the interchange fee. The processor passes this amount to the bank that issued the card presented in the transaction.

A much smaller percentage of the discount, known as the Assessment, currently set at 0.11 percent, is paid to the Network (Visa or MasterCard) whose card is presented in the transaction. Additionally, the processor keeps a percentage (0.54 percent in our hypothetical example), which is the cost of processing the transaction. However, many clients billed under this arrangement see solely the discount rate in their monthly statements. This is the reason why the discount-based pricing arrangement makes it much more difficult for the credit card merchant account holder to know what precisely is being paid to what party and how much the clients are actually paying for the whole costs of processing.