What is a Merchant Discount Rate?

Merchant discount rateWhat does merchant discount rate mean?

A fee that is assessed when a credit card payment from a customer is processed, the discount rate comprising of fees, assessments, network charges, dues, and markups by the merchant that are required for the acceptance of debit and credit cards.

The largest merchant discount rate is the interchange fee, All ISOs and banks have real costs in addition to the interchange fees, the merchant making a profit by adding a mark up to the above-mentioned fees. Banks and ISOs use a number of price models to work out the fees that they will charge. In general, merchants can expect to pay a fee between 1% and 3% for each transaction processed.

The payment processing fees are necessary to help support the infrastructures that in turn make global ecommerce possible. Thanks to payment processors, we are seeing faster transaction processing, and advanced point-of-sale systems that offer multiple payment options, including loans and lines of credit. Payment processors are driving these changes, and the relationship they have with merchants is key to the evolving technology.

Merchant discount rates will vary based on how they handle payment processing. Fintech companies such as Shopify and Square can often offer low rates due to their large network of merchants. Ecommerce sites can also work directly with banks who offer payment processing services.

The downside to working directly with banks is their fee structure can often be complex and confusing. This can make it difficult for a merchant to make a comparison between payment processing services. Also, for ecommerce businesses the merchant discount rates are often higher due to the added costs of network security. If you have both ecommerce and local physical sales this can make matters even more complex.

When looking at fee schedules you’ll see they are typically charged at the merchant discount rate, but you can also find payment providers who charge a flat monthly fee, which is usually based on the assumed volume of transactions to be processed. Banks can offer the best services by bundling all network processing, but this also increases fees. A fintech processor often has lower rates, and less complex fee structures.

Customers and merchants both benefit from electronic payment networks, which allow for payment from multiple sources. In some cases, requiring a minimum charge is a good way for merchants to help support the payment of the merchant discount rate, so this should be a consideration.

Become an ecommerce expert

Enter your email to get the party started