Levels of Risk and Associated Discount Rates

Risk and credit card processing rates have a practical connection. Quite simply, the higher the risk, the higher the cost of processing a credit card transaction. The risk of acceptance of a credit card from a customer is determined by the circumstance of the acceptance. Let’s look at some examples. The qualified rate is the rate with the lowest risk. The low risk factor is determined by the fact that the credit card is present at the point-of-sale when the purchase is made. The customer gives the credit card to your clerk. Your clerk swipes the credit card through your credit card terminal. This creates an electronic transaction that is successfully transmitted by the terminal to the merchant bank for processing. Optionally, the address for the credit card number can be verified in a large database. If the address is found the transaction will receive the qualified rate.

The next level of risk for a credit card transaction is what is called mid-qualified. In this case the customer gives the credit card to your clerk at the point-of-sale and your clerk swipes it through your credit card terminal. But for some reason, the terminal cannot “read” the card when it is swiped. Your clerk must then enter the bankcard number into the keypad of the terminal to create the transaction. When the transaction is sent to the merchant bank, the address verification is successful, so the transaction is assigned a mid-qualified rate. There is a little higher risk for this transaction because the credit card number was keyed into the terminal, rather than being “read” when it was swiped.

The third, and last, level of risk is the non-qualified level. This risk level is assigned in more than one circumstance for a transaction. In this case the customer gives the credit card to your clerk to swipe through your terminal. The credit card number is either successfully “read” by the terminal or the credit card number can be keyed into the terminal. But the address verification is NOT successful for this transaction. Then this transaction would be assigned the highest risk or a non-qualified rate. The non-qualified rate is also assigned to some corporate and foreign bankcards. This is done because the address verification for these credit card numbers is NOT successful. This rate is also sometimes called the “card not present” rate because it is applied to transactions that you might receive through your website or over the phone. These are instances when the card is not available to be swiped or keyed into your terminal.

What Kind of Merchant Account Do you Need

When you are getting ready to get a merchant account for your business you will usually find that you can get such an account through an Independent Sales Organization ("ISO"). This ISO, who has agreements with merchant banks, will help you fill out an agreement that goes to a merchant bank for underwriting. Getting one of these merchant accounts is a lot like getting a loan from a bank. You have to fill out the application and then let underwriting at the bank review the data you put on the application. They will decide whether your business is worthy of a merchant account, based on the information that you give them in the application

As technology has moved on, it is now necessary to decide what kind of merchant account your business requires. If you have a storefront where you sell products to customers who visit your store, then you would need a point-of-sale ("POS") merchant account. If you have an online business, you would need an Internet merchant account. Some businesses have two merchant accounts, one for the store and one for the website. Of course you will be using different technology to accept credit cards in a store than what you will use to take credit cards through a website. In the store you will use a credit card terminal to "swipe" most of the credit cards. On the website you will use a payment portal to accept secure credit card transactions through the website. Both of these technologies are very secure in protecting the credit card transactions as they are electronically submitted to the banking system.