This section provides detailed information about merchant accounts and merchant services on topics such as debit and online debit card processing

What is Interchange and Assessments?

Have you ever wondered how merchant service providers determine merchant account pricing, or why some credit card transactions cost more than others?

To better understand what you’re paying for, you need to know how merchant account pricing is established.

Simply put, there are two basic fees that collectively, make up the vast majority of the cost of a merchant account. In the credit card processing industry, these costs are referred to as “Interchange and Assessments,” and they are charged by bank card networks like Visa and MasterCard every time a merchant accepts one of their cards for purchases.

Essentially, the “Interchange” rate is a percentage that is deducted from each credit card transaction amount, and the “Assessment” fee is a flat transaction fee added to the cost of processing each credit card sale.

There are many components that influence the cost of processing a credit card, but the Assessment fee charged for a transaction is determined exclusively by the brand of the card accepted and is set by the bank card network that issued the card.

Interchange pricing is bit more complex, because each card and transaction type has a unique cost, creating an assortment of over 150 Interchange rate categories. As a result, the Interchange category any one transaction will fall under depends on various factors, including:

  • A business’ processing environment (retail, phone order, internet, etc.)
  • A business’ card acceptance method (swiped, keyed, online, etc.)
  • The information sent along with transaction (address verification, CVV2, tax amount, etc.)
  • The card brand and type accepted (debit, credit, rewards, corporate, etc.)

To lessen any confusion, merchant account providers typically compile all similar Interchange categories and bundle them into a few groupings such as qualified, mid-qualified and non-qualified. However, this is just one way merchant accounts can be priced. Some merchant account providers quote an “Interchange and Assessments, Plus” structure, which combines the actual cost of the transaction based on the Interchange category into which it falls, the applicable Assessment Fee, plus an additional specified value on top of each.

In the end, the bulk of a merchant’s credit card processing expenses and the root of all merchant account pricing structures derive from the combination of the Interchange and Assessment fees, regardless of the pricing structure.

For more information about this, or any other merchant account topic, please contact Customer Service.

What is a Merchant Account?

Merchant accounts provide businesses with the ability to accept credit card and debit cards for purchases. There are several different aspects to a merchant account, which we will describe below.

A Merchant Account Entails:

  • Processing Services: To set up a merchant account, a business owner, or “merchant” must apply through a merchant service provider (MSP) such as Merchant Warehouse. Approval of a merchant account depends on factors which include, but are not limited to:
    • Applicant and/or Personal Guarantor’s Credit Score
    • Business Type (Goods or Services Sold)
    • Card Acceptance Method (Merchant Type)
    • Monthly Volume & Average Sales Ticket
    • Business’ Financial Condition & Bank Account Type
    • Business Longevity
    • Return/Refund Policies
  • Processing Rates & Fees: There are various fees associated with having a merchant account. These could vary, depending on the type and company providing the service, but all merchant accounts have 2 main costs:
    • Discount Rates: With most merchant service providers, every processed sale is classified into 1 of 3 qualification levels (Qualified, Mid-Qualified, & Non-Qualified), and is charged a discounted percentage rate associated with that qualification. Each sale’s level and rate is determined by the type of card used, and/or how it is accepted and processed.
  • Transaction or Authorization Fee: This fee is charged for each electronic authorization request and transaction made, including all approved and declined sales, returns, voids, and batch settlements.
  • Processing Capability Systems: To process credit card payments, processing equipment or software is required to capture card information, make authorization requests, and close sales. Depending on business needs, equipment options include:
    • Terminals: Wireless, Contactless, Stand-Alone and Terminal/Printer Combination units
    • PC Software: Stand-alone or integrated into other business systems
    • Internet Gateway Solutions: Virtual Terminal or eCommerce versions

To maintain customer satisfaction and increase sales and revenue, it is becoming essential for businesses to have merchant accounts and accept credit card payments. Fewer and fewer customers carry cash, checks involve significant risk, and sending your customers running to the ATM machine could lose you valuable business. For both your business’ and customers’ benefit, sign up for a merchant account today.

What Are Credit Card Chargebacks?

The definition of a chargeback is when a cardholder disputes a charge posted to their credit card account. Chargebacks can occur for various reasons, such as when a purchase was not authorized by the cardholder (fraud), or when goods or services are not provided as expected.

You should be able to avoid the vast majority of chargebacks by providing good customer service and ensuring that your products and/or services are advertised, and delivered, as promised.

For those chargebacks related to fraud, there are simple steps every business can take to help avoid any problems. It is up to every merchant account holder to be diligent in accepting charges, and to educate their staff about the precautions to take.

In environments where the business is accepting and swiping cards at the time of the transaction, there are several simple steps which can be taken:

  • Always compare the signature on the receipt with the signature on the back of the card.
  • Always examine the card to ensure it is not altered or suspicious looking.
  • Request identification such as a license or some other picture ID.

In situations where the business is taking credit card without the customer present (over the phone or Internet, for example), the chance of fraud-based chargebacks is much greater. It is very important for these businesses to put systems in place to help determine legitimate charge activity.

  • If appropriate, call customers to confirm their order if the billing and shipping or contact addresses do not match.
  • Ask for the code number on the back of the card (or front with American Express®) to confirm that the card is in the customer’s possession.
  • If you receive questionable orders, call to confirm the order with the cardholder.

If you have reason to believe that a card is fraudulent or otherwise questionable, always call the card issuing company for a voice authorization.

What Should I Expect in Your Monthly Merchant Account Statement?

Merchant account statements can sometimes be confusing, especially for new merchants. Generally, questions and concerns pertain to the charging of monthly fees and the timing of account statements, so we hope that this article will help to explain some of these confusing aspects.

As with any credit card processing company, merchant accounts typically becomes active within one business day of the account approval date. Once your merchant account is live, you are able to process credit card transactions and are also responsible for any fees assessed starting on that date. Therefore, any monthly fees will be charged, in full, for every month the account is open, regardless of your processing volume.

Monthly fees are posted to your bank account generally within the first week of the month following your merchant account activation, and continue each month that your account remains live. A statement reflecting the charges for your previous month’s processing activity is then issued and should follow mid-month. If you do not receive your processing statement by the third week of the following month, you should contact customer service to confirm that we have the correct mailing address as specified on your merchant application.

Please contact a customer service representative if you have any questions or concerns about your monthly merchant account fees or credit card processing statement.

How Do I Avoid Downgrades?

Whether you are currently accepting credit cards, or plan on doing so, it is important to know how to save money by avoiding downgrades whenever possible.

A downgrade simply means that you are being charged a rate increase because the type of card your customer is using has a higher processing cost or because a transaction was processed incorrectly by you, the merchant.

You can’t always prevent downgrades from happening, but this article will show you what you can do to keep your transaction costs as low as possible.

As an example, for a Retail or “Swiped” Account where the customer is handing over their card for processing, a transaction will get the Qualified Discount Rate (lowest rate possible) only if the card is swiped, the cardholder is present, and the card is a standard consumer credit card. If any of these criteria are changed, the account will “downgrade” to either the “Mid” or “Non” qualified level. These levels are each associated with a greater cost of processing.

Here is a more detailed description of what can be done to avoid many downgrades, and also what happens if certain criteria are not met.

Retail/Card Swiped Accounts

Qualified Rate

The Qualified Discount Rate is charged when all of the following occur:

  • Standard consumer credit card is used
  • Card is swiped accurately and data properly obtained
  • The customer’s signature is captured
  • The transaction is “Batched” or “Settled” within 24 hours


The Partial/Mid Qualified rate will be applied when any of the following occur:

  • The card info is manually entered, or “keyed” & all AVS info is entered
  • The consumer uses a Rewards card
  • Transactions are not settled/batched within 24 hours


If any of the following situations occur, a Non-Qualified rate will be applied to the transaction.

  • Card is manually entered with no AVS info entered
  • The consumer uses a Corporate, Government or International card
  • Authorization code is manually keyed in to your processing terminal.
  • Transactions are not settled/batched within 48 hours

Keyed “MOTO” or Internet Accounts

For these types of accounts, the merchant manually enters credit card information into a credit card terminal or software after the order is placed or is collected through an online payment gateway.

Qualified Rate

The Qualified Discount Rate is charged when all of the following occur:

  • Standard consumer credit cards are used
  • All required Credit Card information is entered including AVS (address verification) for VISA® transactions.
  • The transactions are “Batched” or “Settled” within 24 hours
  • The order/invoice Number entered


For MOTO/Internet Accounts, rates usually fall directly to Non-Qualified, not mid-qualify, but these are the possible reasons why a merchant may be charged a Mid-Qualified Rate

  • AVS information is not entered
  • Transaction/Batch is not settled within 24 hours
  • Card is a Rewards or Business card


If any of the following situations occur, a Non-Qualified rate will be applied to the transaction.

  • Any of the required card or transaction information is not entered
  • The consumer uses a Corporate, Government or International card
  • Authorization code is manually keyed in to your processing terminal.
  • Transactions are not settled/batched within 48 hours

As you can see, there are many factors involved in determining which rates are assessed to your transactions. Follow the tips above, and you will keep your processing rates as low as possible. A Merchant Industry representative is always available to answer any questions or concerns you may have.

What Are The Visa & MasterCard Rules and Regulations?
As a merchant accepting MasterCard® and Visa®, there are basic card acceptance rules that you must follow. By adhering to these rules, you can increase customer satisfaction and ensure that you do not run into compliance issues, which may put your continued ability to accept credit cards at risk. The following are some of the rules outlined in the Visa and MasterCard manuals:

Card Logos & Acceptance: You must display the appropriate card logos for any card types that you accept and advise your customers of their payment options. You must honor all categories of cards (credit, debit, rewards etc.) within each card type that you accept.

Dollar Minimums and Maximums: You may not impose a minimum or maximum amount for any transactions. If you do not accept a customer charge, which is below a certain amount that you specify, the customer can notify Visa and/or MasterCard, who will take the appropriate steps to see that you understand and adhere to the card acceptance rules and regulations.

Surcharges: All credit card transactions must be treated like any other transactions. You may not impose any surcharge on a transaction because your customer is using a credit card. However, you may offer a discount to your customers for paying in cash provided the offer is clearly disclosed to your customers and the cash price is a discount from the standard price charged for any other type of payment.

Laundering: You may only process transactions for your own business. Processing transactions for a business that does not have a valid merchant agreement is called laundering and is considered a form of fraud.

To learn more about the rules and regulations of accepting Visa and MasterCard cards, please contact us or see the Visa and MasterCard guides available through the Visa and MasterCard websites.

What is Debit Card Processing?

While most merchants know they should accept debit cards, it is not always easy to understand how to take full advantage of debit card processing. Merchants can do debit card processing in one of the following two ways:

Offline Debit Card Processing The most common way to accept debit cards is an “offline debit transaction.” In this type of sale the merchant accepts a debit card the same way in which they would accept a normal credit card. The card is swiped through the terminal and the customer signs the receipt. As far as the merchant is concerned, there is no difference in the way a credit card or an off-line debit card is processed. The one thing merchants must remember is that the debit card must have a VISA® or MasterCard® logo on it. Cards that do not bear the Visa or MasterCard logo can not be processed off-line and will not be approved.

Online Debit Card Processing A potentially cheaper and more secure, method for accepting debit cards at the point-of-sale is called an “on-line debit transaction.” In this type of sale the card must be swiped through the terminal and external or internal PIN Pad is used to enter the merchant’s four digit PIN. The terminal will pass the encrypted number to the bank for verification. The merchant will then be paid for the transaction in the same manner and time frame that they would be paid on a credit card sale. The cost of this type of transaction is potentially lower due to the way in which the merchant is charged by the processing companies. Rather than paying a flat fee and a discount rate, or percentage of the transaction, as with a credit card or offline debit transaction, there is only a slightly higher flat fee.

What is Online Debit Card Processing?

Not all debit card transactions are the same! For those merchants able to use a PINPad along with a credit card terminal, online debit card processing can offer a big savings. The difference between “online” and “offline” debit card transactions is that “online” requires the merchant to input their 4 digit PIN number and have their card swiped while “offline” functions exactly the same as any credit card transaction.

So why is does online debit card processing have such potential savings? Consider the bank’s perspective. When a customer presents their card for payment and then enters a PIN number manually, the chances of fraud are extremely small. Because if this, the costs for pin based, transactions, or online debit card processing, can be much lower.

When conducting pin based transactions, merchants are charged a flat fee for each order instead of a percentage rate (discount rate) plus transaction a fee. Assuming a merchant takes 100 debit cards over the course of a month (about 3 per day) and averages $85 per sale, a conservative cost analysis shows that a merchant could save over $100 a month, or $1,200 a year.