"Don't worry about the non-qualified rate. It only applies to corporate and government credit cards."
Are you looking at your credit card processing statement every month while banging your head against the wall trying to figure out how to lower your non-qualified credit card processing fees?
If so, you'll be really happy to learn that non-qualified rates are nothing more than a greedy little figment of your processor's imagination, conjured up in the interest of deceit and profiteering. I kid you not — non-qualified rates are just one big, silly scam, and I'm going to show you how to rid yourself of non-qualified fees forever. Read on, my friend!
- Just so you know that I know...
- Interchange rates are the only reality.
- Processors think you're stupid.
- Your processor is the puppet master of your rates.
- Interchange pass through: The light at the end of the non-qualified tunnel.
Just so you know that I know...
Listen, this ain't my first rodeo. I owned a retail store before I grew wise to processors' shenanigans and created CardFellow to help people like you *not* get ripped off by processors. To prove that I can empathize, I'll describe the dance you do with your processor every few months. I know it well, because I used to do the same one.
Here goes...
It all starts when you read your credit card processing statement and cringe at all the non-qualified fees. Then you pick up the phone and call your processor's customer service (term used lightly) center. The person that answers the phone acts like you're bothering them, and then they feed you some B.S. line about how non-qualified fees are a fact of life, and they're your fault anyway because you're probably doing something to cause them.
At this point you start to get frustrated, so you push a little harder for a solution that has even a remote hint of sincerity. Alas, it never comes. So, by now you're all sorts of ticked off, the representative is no longer hiding the fact that they don't care about your silly problem with non-qualified fees, and they agree to lower your rates to get your off the phone.
Here's where you pause and ponder... it all seemed too easy. How can this minion of the credit card processing underworld lower my rates without even consulting his leader? Having accomplished what seems like a victory, you hang up the phone with a hollow feeling in the pit of your stomach. You won the battle, but know that the war is far from over. You fully expect to see those non-qualified fees next month, but at least the rate will be lower this go-around, right?
(Repeat process next month)
So, how'd I do? If this sounds remotely like your situation, I'm about to save you time, money and a big headache.
Interchange rates are the only reality.
There's a little something called interchange that dictates what processing banks pay issuing banks when you process a credit card. Since interchange is the same for all processors, the details of how it works are incidental, so you don't have to worry about the terminology or intricacies of how things work.
Just understand that interchange is the equivalent of a wholesale price list for credit card processing. I'm going to say it once more because it's that important: interchange is the wholesale price list of the credit card processing industry.
I'll link to the actual interchange rate lists for Visa and MasterCard at the end of this article, but I want to keep you on track for now.
Processors think you're stupid.
There are a lot of different interchange rates, like 500 or so, and they're assessed individually on a per transaction basis. What I mean is every single one of your transactions is assigned an interchange rate based on the type of card the customer uses, how you process the transaction (swiped, keyed, etc.) and a host of other variables.
Some of this probably sounds familiar because processors will often use a version of this truth to sell their lies about non-qualified rates. For example, you may have been told once upon a time that "all of your transactions will be qualified except for reward and business cards." That's a load of trash.
A Non-Qualified Rate Example
There's a perfect example of this twisting of the truth courtesy of Wells Fargo. If you check out that link, you'll notice that in the very first paragraph Wells Fargo says,
"A non-qualified fee ... is ... generated when a transaction ... does not meet Visa®, MasterCard®, and Discover® Network requirements."
That's an interesting statement because Visa, MasterCard and Discover don't have any requirements that determine whether a transaction is non-qualified. They have guidelines that determine into which interchange category a transaction qualifies, but these guidelines don't specific mention a non-qualified rate.
Wells Fargo goes on to say,
"... Visa, MasterCard and Discover Network assign the appropriate interchange level. Each account is set up [Read: Wells Fargo sets up each account] with an interchange level according to its processing method and business type. Any transaction that does not qualify at that level [Read: Any transaction that does not qualify at the level Wells Fargo determines] may result in a non-qualified fee being charged."
So, which is it? Do Visa, MasterCard and Discover determine which transactions are non-qualified, or do they simply "assign the appropriate interchange level?"
The answer is B. Visa, MasterCard and Discover assign the appropriate interchange level, and Wells Fargo determines what they feel is non-qualified.
Since interchange is confusing, processors took it upon themselves to create a pricing model that simplifies costs by grouping interchange fees into fewer categories called qualified, mid-qualified and non-qualified. The qualified rate is the lowest and the non-qualified rate is the highest.
Processors got one thing right. The simplicity of tiered pricing does make it easy to understand, but it also makes it easier for processors to separate you from your money. As I’ll explain in a moment, tiered pricing is opaque, misleading and expensive.
It's nice of your processor [insert sarcasm here] to simplify complex interchange fees for you, but it’s time to let them know that you're a lot smarter than they give your credit for.
Your processor is the puppet master of your rates.
The reason why tiered is so evil is because it gives your processor the ability to manipulate costs behind the scenes by allowing them to control which pricing tier gets used the most.
For example, your processor doesn't have to raise your rates to increase their profits (and your costs). All they need to do is route more interchange fees to your mid and non-qualified tiers. Sure, you will still have a nice low qualified rate, but it will rarely be used.
Remember that sorry excuse for a customer service representative that lowered your rates to shut you up? They couldn't care less about lowering your rates a few percentage points because they know the processor is just going to route a larger portion of your transactions to the mid and non-qualified tiers. Sure, your rates went down, but your overall cost will still go up.
My point in all of this is certainly not to make you feel silly, or to pour salt in your wounds. I just want to get that you're good and irritated before I show you how to stick it to your processor.
Interchange pass through: The light at the end of the non-qualified tunnel.
It seems like ages ago, but I started off by telling you that non-qualified fees are nothing more than a figment of your processor's imagination. Well, I wasn't lying. Tiered pricing isn't the only game in town.
All you need to do to totally rid yourself of the non-qualified rate nightmare is to get interchange pass through pricing. That's it! Dump tiered pricing for pass through and you eliminate your processor's ability to play games with your rates.
Unlike tiered pricing, pass through functions by allowing you to pay the actual interchange fees. Instead of charging several different rates, your processor makes money by charging a single fixed markup. The result is lower cost and a more transparent processing statement. Imagine, you will actually be able to see where your money is going each month.
So, where can you get pass through pricing? If you want to do things the easy way, sign up for free at CardFellow and get competitive quotes from multiple processors instantly. We'll even help you decide which option is best, and we'll make sure you rates stay low indefinitely.
Alternatively, you can pull up your favorite search engine and start calling processors one by one asking if they offer pass through pricing.
Oh yeah, the links to the Visa and MasterCard interchange fees that I promised earlier are right here. You probably won't need them, though, because we show you all that detail at CardFellow, too.
CardFellow has this 100% correct. If you (the merchant) are not on a cost-pass-through program with your current processor, then you are on a confusing three-tier program, and have to deal with qualified vs. non-qualified transactions, and hidden surcharges over the real interchange rates. As a result, you have no idea how much revenue your processor is making off your business over the actual cost of processing, and therefore you are probably grossly overpaying for processing.
To save money on your processing, you have to stop thinking in terms of “rates”. For example, let’s say you currently have a “great” qualified rate of 1.48% + 10 cents. Well, the reality is it isn’t great — since it is already marked-up by about 50% over the actual cost! How is that possible? Well, that “great” rate probably only applies to debit card transactions! And debit card transactions typically have an interchange rate of about 1% + 10 cents (which will be even lower once the recent government regulations become effective). So, that rate offered by your current processor is already marked-up far above the real, lower interchange rate! That stinks!
And what stinks even more, is that most of your transactions are going to be non-qualified! And that means your processor’s mark-ups over the real interchange rates will go even higher! Expect to pay even greater mark-ups if you accept a credit card, even more if it is a business/rewards credit card, and even more if it is keyed-in (as opposed to swiped). Those mark-ups are on top of the actual, real interchange rates, which are going to be higher for a credit card, or a keyed-in card. So, for example, a business rewards credit card might have a real interchange rate of 2.1% + 10 cents. But since it is non-qualified, your current processor may add an additional 2% non-qualified surcharge on top of that, so you would be paying 4.10% for that transaction. Some non-qualified surcharges are even higher!! Their surcharges are adding insult to injury!
The good news is that if you’ve read this much on CardFellow, you’ll soon be able to avoid all this three-tier, qualified vs. non-qualified, hidden surcharge nonsense by getting your business on a cost-pass-through pricing platform (like those offered through CardFellow). Good luck!