Credit Card Merchant Accounts - How Discount Rates Work

Each Payment Processing Provider has different fees associated with credit card processing. Typically, it is a percentage of your monthly sales amount + a flat transaction fee. However, some Payment Processing Companies do not charge a flat transaction fee, just the percentage on the monthly sales volume.

The usual rule is the higher the percentage the lower the per transaction fee and the lower the percentage the higher the per transaction fee.

When is comes to Credit Card Merchant Accounts (Discount rates and transaction fees) you need to do the math of ALL the fees to decide which companies are being the most competitive.

Let's look at a couple of examples below to better understand how credit card merchant accounts work.

Example 1:

Credit Card Discount Rate: 2.65%

No Transaction Fee: 0.00

327 Transactions

$18,267.00 in Credit Card Sales that month

Average Ticket Price: $55.86

2.65% X $18,267.00 = $484.07 in Credit Card Processing Fees that month

Example 2:

Credit Card Discount Rate: 1.89%

Transaction Fee: 0.10 cents

327 Transactions

$18,267.00 in Credit Card Sales that month

Average Ticket Price: $55.86

327 Transactions X 0.10 cents = $32.70

1.89% X $18,267.00 = $345.24

$32.70 + $345.24 = $377.94 in Credit Card Processing Fees that month

Example 3

Credit Card Discount Rate: 1.59%

Transaction Fee: 0.25 cents

327 Transactions

$18,267.00 in Credit Card Sales that month

Average Ticket Price: $55.86

327 Transactions X 0.25 cents = $81.75

1.59% X $18,267.00 = $290.44

$81.75 + $290.44 = $372.19 in Credit Card Processing Fees that month

* It is obvious in this Example that example 3 is the better Merchant Account to go with, but it doesn't always work out that way. The number of transactions versus business volumes you do can greatly affect what you end up paying. Rates can be structured very creatively and it is important that each business does the math on paper to see which rate structure is best for their specific business.

As you can see Example 3 is not much better then Example 2 and if the number of transactions had been 400 or more every month well then Example 2 would work to be less expensive.

It is always best to review a Payment Processing Companies entire program and add up all the associated fees they charge times your business volume to see which one comes out the least inexpensive.

Many Card Processing Companies structure their rates/fees differently and it is best to know what questions to ask before signing with a payment processing company.

Let me see more examples on credit card merchant accounts.