Card Payments Explained

Do you know what you are really paying to process credit card transactions?

Understanding your true credit card rates can be confusing. Your bank may highlight one low rate, but you may get that rate on only a very small percentage of transactions. All Merchant Processors have their own way of presenting fees and transaction charges, so it is often difficult to make apples to apples comparisons amongst companies competing for your business. The following sections break-down the components of the charge to process credit/debit card transactions. Sometimes these fees are hidden, but they are always there in one form or another.

Get a FREE, no obligation, credit card rate analysis from Stratus. Simply download the Analysis Request Form, and send the completed form back with your most recent statement. We’ll provide a complete breakdown of your per-transaction charges, and show you how much you can save with Stratus.

The Two Components of a Credit/Debit Card Transaction

Each time you process a credit or debit card transaction through your merchant account, you are charged an inquiry fee and a percentage of the total transaction. The inquiry fee is a flat amount, typically between 20 cents and 35 cents. The percentage charged, is typically called your “credit card rate” and it is variable based on the type of transaction and the type of card used.


Credit Card Rate Categories

Credit Card Rates are typically broken into two categories:

  • Card Present (where the card is physically swiped through a credit card terminal) The lowest rates are typically applied to card-present transactions.
  • Card Not Present (any type of transaction where the card cannot be swiped) This type of transaction is also referred to as MO/TO (mail order/telephone order). All transactions where a credit card is not physically swiped through a terminal, including internet transactions, phone transactions, or credit-card numbers keyed into a terminal, fall into this category.

Credit Card Rate Types

The rate for each credit card transaction type is determined by both the kind of card used, the way it is processed, and the time it takes the merchant to batch the transactions for processing. It is important to know whether you do mostly card present or card not present transaction when selecting a plan type, because card not present charges are significantly higher in a Type 1 plan than in a Type 4 plan.

Type 1 (or Retail) - This type of account is designed for card-present transactions.

  • Qualified
    The card is swiped through a terminal, and the merchant batches the transactions within 24 hours. Most swiped credit cards will fall into this category. It is typically the lowest rate.
  • Mid-Qual
    This rate applies to rewards cards and key-entered transactions. It also applies to charges batched in 24-48 hours, that would be Qualified had they been batched sooner.
  • Non-Qualified
    All corporate and government cards are charged this rate regardless of batch processing time. Other transactions batched after 48 hours are also charged this rate. This is typically the highest rate charged.

Type 4 (or MO/TO) - This type of account is designed for card-not-present transactions.

  • Qualified
    Most transactions fall into this category, provided the merchant batches transaction within 24 hours. This is the lowest Type 4 rate.
  • Non-Qualified
    All corporate, government, and reward cards are charged this rate regardless of batch processing time. It also applies to charged batched after 24 hours that would otherwise be Qualified had they been batched sooner.

Money Saving Tip

If you have an account that gives you good rates for card-present transactions it will typically penalize you heavily for card-not present transactions. However, you can get a Merchant Account that is designed for these Card Not Present transactions that will provide you with substantially lower rates. Thus, before selecting an account you need to understand the type of transactions you use most. Also note that it is very important to immediately destroy credit card information provided in writing or over the phone and to store electronically submitted information (such as that submitted over the Internet) on a secure server.

  • Tip: If you regularly have both types of transactions, create two accounts: one Type 1 account and one Type 4 account.
Make sure you know what you are really paying! Get a FREE, no obligation, credit card rate analysis from Stratus.