Reasons why higher credit card fees are charged

Posted on Wednesday, October 03, 2007

There are quite a few ways that merchant service providers can structure the pricing of credit card fees.

Some companies will offer a 'Qualified' rate of something like 2.69% and $.30 and then a 'Non Qualified Rate' of 3.47% and $.30. There are similar variations with three and four different categories instead of two. Sometimes companies will offer a category only for 'Debit' cards and other times they will bundle the credit and debit card rate into one. Neither one is necessarily better than the other. It just depends on what the other categories are and the price of each.

Merchant service providers can typically choose any of five or six different pricing structures when offering credit card processing services. Regardless if you have two, three, or four different rate categories, there are reasons why certain cards will be charged the respective rates.

Most of the time, if you process a consumer credit or debit card and you successfully capture their correct billing address (known as Address Verification Service, or AVS) the transaction will fall into the 'Qualified' bucket and get charged the Qualified rate. If you don't correctly capture the billing address, then the transaction will be 'downgraded' and will fall into a category with a higher rate.

Corporate, business and international cards typically fall into the higher rate categories regardless of whether AVS is captured. Some rewards cards also fall into these higher categories. Other reasons why transactions may be assessed a higher rate include not settling transactions within 24 to 48 hours, authorizing credit cards and then capturing them after a predetermined amount of time, and authorizing a credit card and then capturing it for a different amount. While there are some standard guidelines in the industry, processing companies have discretion about what types of cards fall into what categories and for what reasons.

So in this regard, it's always difficult to do a direct comparison from one provider to the next. It's helpful to always understand all of the different categories that your provider will be charging and the general guidelines they've assigned to each.

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