When you sign up for a credit card processing account, most providers will emphasize that their service is simple and easy. A month later when you get your first statement, it may as well be in a foreign language given how difficult it is to decipher. You might find fees labeled with mysterious acronyms and/or rates that appear to be different from the ones quoted by the sales rep that processed your account sign-up. Understanding credit card processing rates is a good step toward improving your bottom line
Advertised Rate vs. Actual Rate
When you're shopping for a credit card processing account — be it online or through conversation with a customer service rep — you’ll almost inevitably be quoted a rate for your lowest-risk transactions, since it is the cheapest and most appealing. Some of the transactions you process will probably receive this rate, but not all of them.
When a payment card processing company processes a transaction, it accepts a certain amount of risk — if there's a chargeback, fraud or other problem, they're still on the hook for the money. So they fix rates based on a perceived risk of transactions. Most processors use a three-tiered system — with "qualified" transactions receiving the lowest rate, and "mid-qualified" or "non-qualified" transactions charged at higher rates.
What Counts as "Qualified"?
For point-of-sale purchases, a "qualified" transaction is a card-present transaction in which a consumer’s credit card is swiped through a terminal — the card is not a rewards card or other special kind of card — and the daily batch is settled within an allotted period of time.
There may be other criteria imposed by the processing company as well. Consumer cards that offer rewards programs are very common, so a substantial number of your transactions may get knocked into a lower, more expensive tier because of this factor alone. In addition, accounts used for both card-present and online transactions will penalize the latter due to the higher risk they represent.
Risk of Chargebacks
When a customer disputes a charge made on his/her credit card, this is known as a chargeback. The issuing bank will investigate the dispute. If they find in the customer's favor, they will refund the cost of the transaction — and demand repayment and an additional chargeback fee from the merchant. Chargebacks most often occur in cases of fraud or when the customer doesn't receive his/her purchase.