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Cheap Merchant Account Rates

Finding a cheap merchant account begins with knowing what to look for. The easiest way to find the best merchant account is to look for providers that offer the least expensive, most transparent forms of merchant account pricing like interchange plus and flat rate credit card processing models.

The most diligent business people will do their homework to find a cheap merchant account. They'll get multiple credit card processing quotes from different providers and negotiate the lowest merchant account rates to get what seems to be a cheap merchant account solution. Here's the kicker, accounts with very low discount fees are not always less expensive than accounts with higher fees. If fact, more often than not - they're substantially more expensive. In this article, I'll explain how rates work and I'll cover the vital merchant account questions that you need to ask providers in order to get the least expensive option for your business.

The merchant discount rate that businesses pay to process credit cards is based on VISA and MasterCard's interchange fees. Basically, interchange rates are the wholesale processing rates paid to the issuing bank of a customer's credit card. Understanding interchange is crucial to getting a cheap merchant account. If you're unfamiliar with interchange fees, take a moment after reading this article to learn about them. It really is money-saving knowledge. Processing rates are structured one of two ways. The first and most common is a tiered rate structure, and the second is something called an interchange plus pricing structure. Since tiered pricing is most popular and most pertinent to this article that's the one I'll be addressing. However, interchange plus pricing is the best and most transparent form of pricing and will yield the cheapest merchant account fees. You can read more about interchange plus pricing by following the previous link.

Tiered merchants account pricing functions by taking the hundreds of VISA and MasterCard interchange fees and categorizing them into several general categories. The first and cheapest merchant account rate category is called the qualified rate. The second and third categories called mid-qualified and non-qualified represent surcharges that are applied to the qualified rate. For example, a typical three-tiered merchant account pricing schedule would look something like this:

  • Qualified Rate: 1.79%
  • Mid-Qualified Surcharge: 0.25%
  • Non-Qualified Surcharge: 0.60%

Understanding how hundreds of interchange fees are packed into these three categories is crucial to recognizing the best processing rates and obtaining a cheap merchant account. Industry professionals refer to each tier of a merchant account as a "bucket," and payment processor can choose which bucket an interchange rate will qualify to. Simply put, providers have the ability to control which fee category interchange rates will be charged to. They can conceivably offer a merchant account quote with a qualified discount rate of 1.50% and still make a profit by routing the majority of charges to the mid and non-qualified rate buckets. Rates as low as this are very appealing at first, but once it becomes apparent how interchange fees are being routed, they're worthless because they're virtually unattainable.

This tactic is referred to as "inconsistent buckets." Inconsistent buckets make it possible for providers to make rates appear a lot cheaper than they actually are. By quoting an unreasonably low qualified rate and then routing the vast majority of interchange fees to the mid and non-qualified surcharge buckets, shifty providers can win business over honest providers that are actually offering a cheaper merchant account.

In order to find a cheap merchant account rate you need to ask a provider how they will be routing interchange fees. How interchange fees are applied is more important than the rates and fees you're quoted. A cheap merchant account rate is worthless if very few of your transactions will ever qualify to it.

If you're already processing credit cards, now is a good time to call your provider and ask them to explain how they're routing interchange fees on your account. You may be surprised at the answer. If you're in the market for a new merchant account, don't be blinded by numbers. Make sure to ask each provider that you receive a quote from how they'll be qualifying the different interchange fees. Don't pick the quote with the lowest rate - pick the quote with the lowest rate that will apply to the majority of your transactions.

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On May 1, 2009 Peter said:

I'm an owner of start up business (bicycle shop) and looking for a credit card merchant
provider to open an account and set up sale on spot terminal. Which provider will be fits to my type of business? Any recommendations?

Thank you,
P.R.

On May 1, 2009 MerchantCouncil said:

Hi Peter,

Congratulations on your new business venture.

We try stay as neutral as possible when it comes to recommending providers. Reason being, a single merchant service provider can have tens or even hundreds of different sales representatives - each of whom will substantially impact a merchant's experience with the provider. In order to make grounded, accurate recommendations we would need to have had experience in dealing with every sales person at a given company, and that's not the case.

We're affiliated with CardFellow.com, and that would be a great place to start your search. After signing up for CardFellow you will receive multiple processing quotes from different providers. If you have any questions about the quotes that you receive you can ask the provider or a CardFellow representative.

Of course, you're always welcome to send questions our way either by posting a comment as you've done here or by sending us an email to contact [at] merchantcouncil [dot] org.

Really, please let us know if you've got questions before or after you begin processing cards.

In the meantime, the following links point to some recommended reading on our site that you'll find helpful as you search for a new merchant account.

New Merchant Account Business Guide
How to Get the Best Merchant Account Services
Interchange-Plus VS. Tiered Merchant Account Rates

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