What Is A Qualified Processing Rate?

A qualified processing rate, sometimes referred to as the swipe rate, is one classification of rates a merchant is charged to process a credit card transaction. This rate is part of a three-tiered fee model most offered by the credit card processing industry. The other rates are referred to as mid-qualified and non-qualified. From this terminology, you get an idea of how this fee model is structured.

What is a qualified processing rate? Well, a qualified processing rate for your credit card processing is the rate most often quoted from providers, because it is the lowest of the three rates in the pricing structure. All merchant credit card processing rates are based on interchange rate and fee schedules that are published on the credit card websites. This interchange rate is passed through to the merchant and any other fees charged by the provider are added on top of this fixed fee. The total of these fees is conveyed as a percentage charged per transaction and this becomes your rate for processing a credit card, though there are other pricing structures available such as a fixed monthly rate. A low processing rate can be tempting, but before you sign on the dotted line of any provider contract, you need to understand that there are strict requirements you must follow for a credit card transaction to qualify for this lowest of rates.

What Kind Of Credit Cards Qualify For The Qualified Processing Rate?

Each credit card brand has its own set of rules and provisions governing their rates, but generally speaking only basic credit cards and certain debit card transactions meet the qualifications for a qualified processing rate. That leaves out a large portion of credit cards that are offered to consumers. Credit cards that have a rewards program, corporate or business cards and a number of other types of credit cards do not qualify for this lowest transaction rate.

Conditions For a Qualified Processing Rate Transaction

Besides the type of credit card used, there are other limitations and restrictions on how the credit card transaction is processed to warrant the qualified processing rate:

– It must be a card present transaction. In other words, the card must be swiped at your point of purchase terminal so the information on the card’s magnetic stripe can be read and transmitted to the issuing bank for authorization. Hence the term “swipe rate”!

– Your customer must sign the sales receipt.

– The date and authorized transaction amount must be correct.

– The transaction must be batched and settled within the time frame fixed by your credit card processing provider.

There are other conditions that apply as well. Your type of business plays an important part in determining if your transactions are eligible for the low, advertised qualified processing rate. For example, high risk businesses, include gambling websites and casinos, businesses that offer adult entertainment and/merchandise, and travel reservations and booking services, that accept credit card payments tend to have a higher risk of refund requests and credit card fraud. If you own or operate a high risk business, you may be offered a tiered structure with a “qualified processing rate” but you can expect to find that your qualified rate will be higher than the rates offered to other businesses.

Qualified Transactions for Internet Merchants

Credit card transactions for internet merchants are considered to be non-present card transactions. Makes sense, right? When your customer purchases through your on-line store or site, there is no way to swipe his or her credit card to verify the cardholder’s information from the magnetic stripe on the back. Most credit card providers consider the mid-qualified processing rate as the internet merchant’s qualified processing rate. For an on-line credit card transaction to qualify for this rate, the following minimum conditions must be met:

– Input the cardholder’s information including the information necessary for AVS (Address Verification Service) to validate the cardholder and authorize the transaction.

– The shipping date must be within 7 calendar days of the authorization code date.

– The settled transaction must equal the authorized amount, including taxes and shipping (for example, no tip can be added after the transaction is authorized).

– The transaction must be batched and settled within the time frame fixed by your credit card processing provider.

With this type of transaction, as with other qualified transactions, the card being charged cannot be a rewards or corporate card.

The list of conditions and qualifications for meeting the qualified processing rate is very specific and most providers fail to mention that usually only 50% or less of your credit card transactions will actually qualify for this low rate. So be careful when choosing a credit card processor. Be sure to compare the mid-qualified and non-qualified rates in any tiered fee structure because an advertised low qualified processing rate will not adequately represent your credit card processing costs.