Merit 3 MasterCard Credit Card Processing Fees

March 14, 2012

Merit 3 is Mastercard’s way of referring to a card-present transaction for most restaurants and retailers. It can actually apply to several different interchange categories based on card type and other details. It does not apply to card-not-present transactions, which will typically qualify for Merit I interchange rates. This article explains specific Mastercard interchange categories. If you’re not already familiar with interchange, it’s a good idea to start with our piece on how interchange fees work.

What is Merit 3?

Mastercard uses a number of variables such as card type (credit or debit), card category (core, rewards, etc.) and processing method (card present or card not present) to determine the interchange rate that will apply to a transaction. Merit 3 (or Merit III) refers to several Mastercard interchange categories for credit and debit card processing fees. It specifically pertains to “card present” transactions. That is, to payments where you physically run the card through a machine. The actual entry method can include swiping a magnetic stripe card, dipping a chip card, or tapping a contactless payment, but it must be processed in one of those manners. It cannot be “keyed” and still qualify for Merit III. It also applies to multiple card types: consumer credit, debit, and prepaid Mastercards. In that sense, Merit 3 qualification has more to do with how a transaction is processed than what kind of card is being processed. As noted above, Merit III means that a transaction is processed by using a piece of electronic equipment such as a credit card machine to read and transmit the information on the card’s magnetic strip. Let's take a look at the current rates and fees. (Subject to change at Mastercard's discretion.)

Merit 3 Rates - Base

Since multiple card types have Merit III interchange categories, I’ve broken them down by credit, debit, and prepaid. Additionally, credit splits further and Merit III has categories for both non-rewards cards (called “core”) and rewards cards. (Called “Enhanced,” “World,” “World High Value,” and “World Elite.”) Transactions made using a Mastercard that produces “rewards” for cardholders (such as airline miles or cashback) will incur different rates and fees.

Merit 3 Base for Consumer Credit

Consumer credit cards (including non-rewards and rewards cards) will be charged according to the card type.

Core Rate	Enhanced Rate	World Rate	World High Value Rate	World Elite Rate
1.65% + $0.10	1.80% + $0.10	1.90% + $0.10	2.30% + $0.10	2.30% + $0.10

These categories will apply if you qualify for "base" Merit III interchange and accept one of the card types above. For example, if you accept a card in the “World Elite” rewards category and have transaction volume that qualifies you for Merit III Base, you’ll be charged the amount in the Merit III World Elite column: 2.30% + $0.10 per transaction.

Merit 3 Base for Prepaid and Debit

Debit and prepaid cards incur different rates and fees than credit cards.

	Volume Rate	Per-Transaction Fee
Merit 3 Base (Debit)	1.05%	$0.15
Merit 3 Base (Prepaid)	1.15%	$0.15

Credit Tier Thresholds

In addition to "Base" Merit 3 interchange, there are tiers based on annual minimum volume thresholds. Those tiers are higher than the volumes small businesses typically process, and so many businesses aren't eligible for those rates. The Merit III minimum yearly thresholds for credit cards are as follows:

Tier 1: $1.8 billion / year
Tier 2: $1.25 billion / year
Tier 3: $750 million / year

Note that these tiers refer to cumulative yearly credit card volume among all types of consumer credit cards. (Including Core, Enhanced, World, World High Value, and World Elite.) If your business does not have annual volume for those tiers, you can expect to receive Merit III Base rates instead.

If you don’t have volume to meet the minimum threshold for the lowest tier (tier 3), your eligible Merit III transactions will qualify for the “Base” category.

Debit and Prepaid Tier Thresholds

As with credit, Mastercard debit and prepaid Merit III categories have thresholds for the various tiers. For debit and prepaid interchange purposes, the Merit III tier thresholds are as follows:

Tier 1: $400 million / year
Tier 2: $275 million / year
Tier 3: $175 million / year

Note that the annual totals refer to required minimum consumer debit and prepaid volume. If your business doesn’t meet these minimum volume requirements, you can expect to see Merit III Base interchange.

Tiered Credit Merit III Interchange Fees

For transactions using a Mastercard that produce “rewards” for cardholders (such as airline miles or cashback) there are different rates and fees. Depending on the rewards card, it may fall into the category Enhanced, World, World High Value, or World Elite. In the table below, you’ll see that the Merit III tiers still apply.

	Core	Enhanced	World	World High Value	World Elite
Tier 1	1.43% + $0.10	1.43% + $0.10	1.53% + $0.10	2.05% + $0.10	2.05% + $0.10
Tier 2	1.48% + $0.10	1.48% + $0.10	1.58% + $0.10	2.10% + $0.10	2.10% + $0.10
Tier 3	1.55% + $0.10	1.55% + $0.10	1.65% + $0.10	2.15% + $0.10	2.15% + $0.10

Mastercard’s interchange can look a little complicated. Essentially, you’d just need to know your Merit III tier level, and then only look at that row. If you don't qualify for the tiers, you just need to look at the base table earlier in this article. Keep in mind that this is just the interchange fee. Since interchange is only one component of your total processing costs, the actual fees you pay overall will be higher.

Tiered Debit and Prepaid Merit 3 Interchange

While there are still three tiers for debit and prepaid cards, the tiers are the same rate for both debit and prepaid. Only the base tier has different rates for debit and prepaid, as seen in the table above for base merit 3. Below you can see the rates for both prepaid and debit.

	Volume Rate	Per-Transaction Fee
Merit 3 Tier 1	0.70%	$0.15
Merit 3 Tier 2	0.83%	$0.15
Merit 3 Tier 3	0.95%	$0.15

These rates come directly from Mastercard’s published interchange table and are subject to change. These rates apply to unregulated debit card transactions. Regulated debit card transactions (that is, transactions made with a debit card issued by a bank that has more than $10 billion in assets) have different interchange fees that are capped by law.

Merit 3 Interchange Requirements

As with all interchange categories, you’ll need to meet certain requirements to receive Merit III rates. If a transaction fails to meet criteria, it can “downgrade” to a more expensive interchange category. For a transaction to qualify for Merit III, it must be:

Settled within one day of authorization
Processed by electronically reading information from a customer’s card

As noted earlier, each Merit 3 Mastercard interchange category has three pricing tiers used to provide lower rates to businesses that have higher gross Mastercard sales volume. Merit 3 Base does not have a volume requirement and has the highest associated fees, followed by Tier 3, then Tier 2, and finally Tier 1 which has the lowest interchange fee but requires the highest amount of annual sales.

Statement Abbreviations

On monthly processing statements that show interchange categories, the Merit III categories may be abbreviated. Processors can use their own names or abbreviations. However, here are some common ones you may see:

MERIT III (for Merit III Base credit)
MER3 T1 C (for Merit III tier 1 credit)
MER3 T2 C (for Merit III tier 2 credit)
MER3 T3 C (for Merit III tier 3 credit)

For rewards cards, the abbreviation often starts with ENH (for enhanced), MCW (for Mastercard World), HV (for High Value), or MWE (for Mastercard world elite.) As with the core credit abbreviations above, you may see “T1,” “T2,” or “T3” to refer to the tier. If there is no tier number, it’s likely base merit 3. However, some processors do write out the entire word or name, as seen in this statement example:

Since each processor can choose how to display the interchange categories, here are some of the common abbreviations you may see for rewards Merit III.

ENH MER 3
MCW MERIT3
HV MERIT3
MWE MERIT3
ENH MER3T1
MCW MER3T1
HVMERIT3T1
MEW MER3T1
ENH MER3T2
MCW MER3T2
HVMERIT3T2
MEW MER3T2
ENH MER3T3
MCW MER3T3
HVMERIT3T3
MEW MER3T3

However, keep in mind that your processor may use other names or abbreviations.

Debit and Prepaid Abbreviations

For debit and prepaid Merit III categories, you may see similar abbreviations as the non-rewards credit card categories above, just with a “D” or “PP” (for debit or prepaid) instead of C for credit. Some examples include:

MERIT 3 D
MER3 T1 D
MER3 T2 D
MER3 T3 D
MERIT 3 PP
MER3T1 PP
MER3T2 PP
MER3T3 PP

As with the credit abbreviations, your processor makes the final decision on labeling. Additionally, on some statements, you won’t see interchange-level detail. For example, many flat rate processing companies (such as Square and Stripe) don’t provide information about the interchange categories that applied to your transactions. That doesn’t mean that you were exempt from interchange fees. Rather, it means your processor is not showing you which interchange categories applied.

Lowering Processing Rates

Ultimately it's not possible to lower your interchange fees. (Unless you're receiving padded interchange from a shady processor.) However, that doesn't mean you can't lower your total cost of processing. Instead of focusing on interchange, which you can't negotiate, you need to focus on what's negotiable: your processor's markup. Start by determining what you should be paying for processing with the most competitive options out there. Try a quote comparison service, like cardfellow.com, where you can see real pricing from processors without having to hand over your statements or talk on the phone with processing reps. It's completely free, and will show you exactly what you could save over your current solution. Try it now!

Ben Dwyer

Ben Dwyer began his career in the processing industry in 2003 on the sales floor for a Connecticut‐based processor. As he learned more about the inner‐workings of the industry, rampant unethical practices, and lack of assistance available to businesses, he cut ties with his employer and started a blog where he could post accurate information about credit card processing. As the blog gained in popularity, Ben began directly assisting merchants in their search for a processor. Ben believes in empowering businesses by providing access to fair, competitive pricing, accurate information, and continued support. His dedication to transparency and education has made CardFellow a staunch small business advocate in the credit card processing industry.