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April 7, 2021
by David Goodale
What is a discount rate?
Learn what the discount rate is, and why it's the most important and significant cost when processing credit card transactions.
(Slightly edited from video transcript for greater readability)
It's a percentage based fee (for example, like 3%) that a credit card processor charges to the business each time a credit card payment is processed.
Discount rates are influenced by factors such as business type (what you sell) and your monthly trading volume.
Merchants can negotiate lower discount rates by trading strong volumes, having a reputable and well established business, and demonstrating a track record of low chargebacks.
Whether its questions about this article, or you want to see how we can lower your costs. Don't hesitate to contact us
Hello, David here at Merchant-Accounts.ca. Today I'm going to tackle a simple question: what is a discount rate?
A discount rate it's definitely not a discount, it's actually the most important and expensive aspect of processing credit card transactions. It is a percentage-based fee that you pay every time you clear a transaction. How much that fee is depends on the quote that you get for your business and that will depend on how much money you process. If you're processing a hundred million dollars a month in sales you'll pay a much lower rate than a business processing a thousand dollars per month in sales. I guess that's obvious when I say that out loud.
As far as rates go, it also matters whether you have a high-risk product or a service. For example, if you are running an online casino you're going to get a lot more chargebacks and potential fraud compared to someone you know with a local organic salad shop selling kale sandwiches. This is all relevant to figuring out the discount rate that you will pay for your business.
The discount rate is a percentage based fee that all merchants pay each time a transaction is processed.
How much should the discount rate be for my business?
What you need to know is the discount rate is a percentage-based fee, and that fee should generally not be over 3% if you're selling to customers located in your own country. If you sell across borders the fee will be a little bit higher because Visa and Mastercard assess cross-border fees, which are actually beyond the scope of what I'm intending to get into today.
You should be paying a percentage-based fee every time you process a credit card transaction. That fee should be based on your transaction volume. If you have any questions and if you want to view our rates, or to get a quote for your business then contact us as we'd love to hear from you.
I hope this was helpful, and that it demystified it the discount rate a little bit. Have a good day.
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David talks about the most important things for small businesses to keep in mind when setting up credit card processing. This includes staying away from long term contracts, avoiding cancellation fees, putting your best foot forward for approval, getting lower rates, having automatic rate reductions built into your agreement, and addressing technical concerns so everything works smoothly upon launch.
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