Learn the Lingo

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Learn the Lingo

Knowing the language of the Electronic Payments Industry can really help you to choose the right Credit Card Processor.

Here are some helpful definitions:

Annual Fee :

This is a fee charged by Credit Card Processors that help them buy Christmas Presents for their kids. Many times this fee is between $35 and $200 per year. It typically offers no value other than to line the pockets of your Credit Card Processor and fleece you out of a few extra bucks each year. If your current Credit Card Processor charges an annual fee… Consider firing them and hiring someone who doesn’t… Like PayZoom.

Discount Rate :

I can tell you, it’s not a discount in the traditional sense of the word. It’s the percentage or fee charged by Credit Card Processors to process your electronic payments. I’m pretty sure that only a banker could come up with a Fee and call it a Discount.

Qualified Transactions :

These are transactions that are typically swiped–though they could be non-swiped in certain environments like a Non–Profit or Educational Institution. Simply put, it’s the best rate possible given to you by your Credit Card Processor–typically because the transaction submitted by you to your provider did not get “downgraded” by Visa, MC or Discover.

Mid-Qualified Transactions :

In a tiered pricing system, where Visa/MC/Discover Interchange rates are simplified by putting them into 3-5 categories for merchants, this is the Middle-Pricing category. This category is typically reserved for Non-Swiped Cards with AVS, (AVS is Address Verification Service) Swiped Rewards Cards and even some swiped Corporate Cards. 

There is no regulation regarding where to price merchants in a Tiered Pricing System, so you must check with your Credit Card Processing Provider to verify where each card type is priced. Some processors manipulate transactions from one tier to another to give themselves Christmas Bonuses. They have to notify you when they do, but it’s usually in the fine print below the fine print… Read every letter on your statement to make sure you aren’t about to get taken to the cleaners!

Non-Qualified Transactions :

In a tiered pricing system, where Visa/MC/Discover Interchange rates are simplified by putting them into 3-5 categories for merchants, this is the Highest Pricing Category for transactions. These are probably transactions that qualified as EIRF-which is a Visa category for transactions without an AVS attempt (no match is required for card-not present environments) AND an invoice number. 

They are also typically Non-Swiped Reward Cards, Non-Swiped Corporate Cards or ALL of your cards within a batch if you failed to settle between 48 and 72 hours to your Credit Card Processor. Like the Mid-Qualified category, there’s no regulation where your merchant provider is required to place certain card types. Yes, I agree. There should be.

Interchange :

Visa/MC and Discover all publish their own Interchange rates. You can go to each card brand’s website to download their copy of Interchange. It’s fairly complicated and there are a lot of rates, downgrade rules and even Industry Specific fees. Effectually, these are the wholesale rates given to your Credit Card Processor and then eventually passed onto you. Every Credit Card Processor pays the same Interchange rates. No one receives a volume discount. 

There’s no good old boy system… The rates are published and all banks and processors pay the same rates. That’s how PayZoom, a very small fish in the grand ocean of Electronic Payments, can offer all of our customers the most competitive rates. This truly puts us on a level playing field with the big boys. There are different Interchange rates based on the merchant’s SIC.


(Standard Industry Code) Four digit code established by Visa and MasterCard transmitted by the network that describe the merchant’s type of business. It may also be known as the MCC (Merchant Category Code). There are specific pricing programs for each MCC. Some examples of MCCs that have a specific pricing schedule are :

   ■ Government Entities

   ■ Utility Companies

   ■ Fuel/Gas Stations

   ■ Restaurants

   ■ Hotel/Car Rental

   ■ Day Cares

   ■ Public and Private Schools

   ■ Transportation

   ■ Non-Profit Organizations

Assessment :

Often included in the term “Interchange” it is actually a separate fee that is paid to Visa, MC or Discover, respectively. The current Assessment for Visa is .12% on Signature Debit, and .11% on Credit. MC Charges the same for both Debit and Credit, .11% but they charge .13% for all transactions above $1,000. Discover charges .105% for all transactions. These rates are not negotiable and all Processors pay these rates. If you don’t see these rates on your statement, your processor is probably bundling these fees into your overall “Discount” rate.


This is the MasterCard transaction fee. Currently, the fee is $.0185 per transaction. The word, NABU is an acronym, standing for “Network Access Brand Usage” fee.

Base II :

The Base II fee is the Visa transaction fee. It currently applies only to Credit cards, as Signature Debit cards get a different transaction fee. The Base II fee is currently $0.0195 per transaction.

Visa Integrity Fee :

This is the Visa Signature Transaction fee, adjusted after the Dodd Frank Law went into effect in October 2011. The current rate for this fee is $0.0115 per transaction.

Interchange-Plus :

This may not need an explanation but here it goes: We take the Visa/MC and Discover Interchange Rates and charge you more so we can make a profit. None of us here at PayZoom went to business school, but we decided when we started this company that we would buy something then sell it for more. All joking aside, this is by far the fairest way to price merchants for their Credit Card Processing. We can guarantee you the best rates on the cards you take the most. If you’re a small coffee shop, then you’re going to take a tremendous amount of Debit Cards. This guarantees that we won’t lump those debit cards into an obscure category and charge you an exorbitant fee on those cards. If you’re a manufacturing company that sells to select vendors, we can ensure that you are getting the best possible rates on the Corporate Cards, Purchase Cards and International Credit Cards that you probably take over the phone or through the web.

Tiered Pricing :

Tiered pricing is a simplified pricing system that lumps the published Visa/MC and Discover Interchange Categories into 3-6 prices. There are problems with this pricing system :

1. Many Credit Card Processors make the most money from the highest category typically known as Non-Qualified. Therefore the Processor has a vested interest in keeping the merchant from knowing how to keep their cards from falling into these categories. So what’s best for a merchant is least profitable for the Processor and what’s most profitable for the Processor is also the most expensive for the merchant.

2. There is no regulation regarding where to place specific card types or Interchange categories into a respective Price Classification or bucket. For instance, most Processors place Rewards 1, a swiped Visa Rewards card that currently only charges .14% more to process than a normal Credit Card, into the “Mid-Qualified” Tier or bucket. Yet, some processors place the Rewards 1 into the Non-Qualified bucket-knowing Rewards 1 is a dominant card type and therefore can make a tremendous profit from a card the merchant accepts often.

3. This pricing model is most volatile to price increases. Every April and October (and sometimes more often than that) Visa/MC and Discover analyze rates and usually raise a rate, create a pricing category and every now and then, even lower a rate. That means that though the pricing deltas may not directly affect your business, it affects enough of the Credit Card Processor’s merchants that a global price increase is inevitable to the Processor’s merchants. This means that though a price increase by Visa may not truly apply to you, your business will probably receive a rate increase.

4. Let’s face it, not every rate increase is warranted by your Credit Card Processor. I’ve sat in executive level meetings where Processor’s discuss “Managing their Portfolio”. It’s enough to make you sick to your stomach. MOST Processors plan to raise your rates because they can. Their contracts are written so they can and they absolutely plan on doing so. It’s their business model. They know some people will complain. Others will leave and process their payments elsewhere… But most people don’t pay attention to their rates. They trust they’ve received a good rate from their Processor or bank and they move onto running their business. Tiered Pricing is the easiest way for merchants to receive rate increases. Although I’ve seen it from Processor’s that offer Interchange-Plus, it’s far more common among the “Tiered Merchants”.

Flat Rate Pricing :

This very simple pricing model has received some press lately but it’s still not a good pricing model for merchants who want the best possible rate from their Electronic Payments Processor. Simply put, if you have trouble budgeting or are Processing more than $2K per month electronically, you need to find an independent Credit Card Processor that offers Interchange-Plus and has a low fee structure. Flat Rate pricing is easy to calculate because it’s a one-price-fits-all payments schedule. Whether you take cards over the phone, the web or on a boat with a goat, you only pay one rate. It sounds easy… But it’s never healthy for a merchant that has a more sophisticated business.

Daily Discount :

This simply means that the aggregate average fee or discount a processor charges is deducted from each batch or settlement. For example, if your rate is 2% and your batch is $1000, instead of being funded $1000, your processor funds $980. This is actually the way Visa/MC/Discover fund almost every processor, so it’s not necessarily a sneaky way to bill merchants but make reconciling your books a nightmare. At PayZoom, we allow our merchants to choose which billing method they prefer and do not charge an additional fee for either.

Monthly Discount :

Instead of taking a fee or discount out of the daily batch as explained in the definition above, all fees are charged at the beginning of the following month. This is how most merchants are billed these days and is certainly easier for account reconciliation.

Merit III :

This is a MC Interchange category simply stating that the transaction was swiped or that all 3 layers of data were transmitted to MC. There are several Merit III sub-categories such as Debit, Regulated Debit, World Cards, Elite Cards and other cards with consumer rewards attached to them.

Merit I :

This is a MasterCard Interchange category indicating that the transaction wasn’t swiped. Like Merit III, the same sub-categories apply.


(Electronic Interchange Reimbursement Fee) This is a Visa Interchange code indicating that the transaction wasn’t swiped (usually) and that the information required to qualify as CPS was omitted with the transaction data. When we analyze a statement for our prospective clients, we look for these transactions and try to help our clients mitigate these transactions.


Point-of-sale. The way you process transactions, but typically referred to as a software system like Micros, Aloha, Protobase, etc…

Luhn Algorithm :

The Luhn Algorithm, also known as “Modulus 10” is a simple checksum formula by which Credit Card processors validate that a credit card number is valid instead of a random set of digits. Mod 10 was developed by IBM scientist Hans Peter Luhn in 1954. It was designed to protect against accidental errors, not malicious attacks. The Luhn algorithm will protect against any single digit error as well as almost all transposed numbers when validating an account number. This algorithm is still used in validating account numbers today–and is a public algorithm used also by the US and Canadian Social Security Administrations. The weakness of this system is that it is public and therefore encryption is necessary to prevent hackers from intercepting numbers across networks.

    ■ The first six digits identify the issuing bank.

        ■ Visa: 4xxx-xx

        ■ MC: 5xxx-xx

        ■ Discover: 6011-xx

        ■ Amex: 34xxxx

    ■ The second seven digits identify the individual account number

    ■ The last digit is the checksum digit identified below. The checksum calculation reads right to left.

Purchase Cards :

You may have looked at your Merchant Processing Statement and noticed one or two card types that you’ve taken labeled as a “Purchasing Card”. Purchasing cards are controlled by the issuing bank based on the corporation or company backing the cards spending controls and limits. There are several control mechanisms built-in which usually include the type of business a Purchase Card can be used (identified by the SIC). Other controls include the amount spent per transaction, per day or per month. It’s important to be identified by your processor with the appropriate SIC otherwise the Purchase Cards will probably be declined at your place of business. We’ve seen restaurants labeled as “general retail” which can cause a pharmaceutical rep’s credit card to be declined; lost sales equals lost revenue.