Merchant Credit Card Account Pricing Basics

Understanding a merchant credit card account statement or payment processing activity sheet can be difficult. There is no common standard for displaying the many potential fees that can be charged to merchants. To simplify their pricing structures, many services providers use a bundled rate, where all fees are rolled into a single percentage rate that is known as a discount. The problem is that the discount rate usually hides the real costs of processing. For example, some bundled pricing agreements feature additional fees, which are totally invisible to the merchant credit card account holder.

Many retailers agree to a bundled pricing arrangement where the payment processor charges a percentage of the gross sale's amount. These pricing models can also feature (and usually do) a fixed per-transaction fee for each payment. A merchant credit card account holder, however, does not see the exact percentage that is being charged by each of the participants in the transaction process. The biggest portion of the discount is comprised of the fees that are collected by the issuing banks and a smaller one goes to the Associations. The following example shows how fees in a bundled discount scenario might be paid out to all of the entities taking part in the transaction.

Let's say that the retailer agrees with its merchant credit card account provider to pay a discount of 2.50 percent, for qualified transactions, which is typically the best rate a retailer can get for a transaction. That discount is actually paid out to three distinct parties. The largest percentage, say 1.80 percent, goes to the card issuer (this is the interchange).

A smaller percentage of the sale's amount, the so-called Assessment, around 0.11 percent, goes to the Association (Visa or MasterCard). Finally, the acquirer keeps a portion (0.59 percent in our hypothetical scenario) for facilitating the payments.

The problem is that many retailers billed under this pricing plan see only the discount rate in their monthly processing statements, without details on the constituent fees.

This is now a bit easier to calculate, as both Visa and MasterCard now publish these rates on their websites. However, the interchange tables consist of dozens different rates each and is very difficult for a merchant credit card account user to know what fee is charged when. Yet, especially if your volume is high and growing, it is important to invest the time and understand the circumstances under which these rates apply, which will also help you select the best pricing model.