All you need to know about the discount rate

All you need to know about the discount rate

Every credit card processing company imposes various charges per transaction. The fees vary depending on the type of merchant account you have, your business credit score and several other factors. When you're shopping for a merchant account, paying attention to the discount rate will help you make the best decision for your business.

The discount rate typically is 2 to 4 percent; in some cases, it can be 5 percent or more. If you want to make the highest possible profit on every transaction, you will need to select a merchant account and credit card processing system with the lowest discount rates and fees.

What is a discount rate?
A discount rate is applied to each credit card processing transaction; it is a sales commission that the credit card issuer or bank is earning for each sale. The discount rate usually is a part of the fee schedule for your merchant account. The typical merchant account will require payment of up-front application fees, ongoing fixed fees, a fixed transaction fee and the discount rate per transaction.

How are discount rates calculated?
Every type of merchant account is assessed a different discount rate based on:

• The length of time you have been in business.
• Your business credit score.
• Your personal credit score.
• The industry in which your business provides services or products.
• The average amount of sales for each transaction.
• The average amount of sales you generate through credit card processing alone.

Many credit card processing companies begin with a base rate for their merchant accounts and then add on percentage points based on the above factors. This is why it's important to shop around and consider several options. In many cases, one bank or credit card issuer will offer you a much better package than another.

Usually, a lower discount rate is imposed for credit card processing terminals and transactions that take place in an offline setting. If your business conducts business online and processes transactions on the Internet, your discount rate may be considerably higher. You also need to pay attention to service fees and any type of annual fees associated with your merchant account.

Selecting the right merchant account for your business can take time, but it's very important to pay attention to the discount rate so you're not paying excessive amounts for your credit card processing transactions. Shop around to find the best fit for your company's needs, and look for the lowest possible discount rates and fees within your merchant account category.

Published: June 17,2023