Merchant Rate

Video Transcription

Good day. My name is Matt Crawford and today I'm going to take a moment to speak about Merchant Rate and what we mean by that term and how that term impacts your business. For the longest time in the merchant services industry, a merchant rate defines how much you pay in a month. That is what percent of or Visa or MasteCard was withheld to pay your merchant services provider. You may also know the term merchant rate by the acronym "MDR" or Merchant Discount Rate. So, your merchant rate again is taken from your Visa or MasterCard sale you do. As I mentioned for the longest time in the industry that was the only cost associated with Visa and MasterCard acceptance. You paid a terminal rental fee, paid a per transaction fee for your debit and then you paid or merchant rate or percentage on your Visa or MasterCard transactions.

What has happened over the last five years or so is the merchant rate has gotten lower and lower and lower. So at first blush that seems like a good thing where you might pull out a statement and compare it from four or five years ago seeing that you paid 2 or even 2 and a half percent merchant rate. Today that same statement shows a rate of 1.65 or 1.7. But what has happened is that when the merchant rate comes down as other fees have gone up. You will now or in all likelihood pay the monthly fee, they'll be called a statement fee, a value add fee or simply a monthly fee. You will also pay an unqualified charge. So what the processors have done and this is across the industry is they've lowered your interest rate which is the rate charged on ordinary cards and by ordinary cards I mean those cards that aren't issued to consumers, they're issued from a Canadian financial institution and they're processed electronically, either the brand strip is red or the chip and pin is used to perform the transaction.

So the merchant rate has gotten lower but the definition of which ordinary cards qualify for that lower merchant rate also has gotten lower. All these other charges have been added on. One of the first things I talk to merchants about when they say "Matt, what's your best rate?" I say "Who cares what my best rate is? My best rate is 1 percent but you're going to pay a 500 dollar monthly charge. You don't want my best merchant rate. What you want is the best pricing for your business; you want to process Visa and MasterCard at the lowest cost. Whether that best cost of a merchant rate, a monthly fee, a on-call search charge. Whatever that is, you as a merchant should be both more focused on what comes out of your account at the end of each month."

So again, what do we mean by merchant rate? We mean that percentage to pay on your base Visa and MasterCard transactions. As I said that was all you paid five years ago, today there is so much more going on and for that reason this term really shouldn't mean anything to us. We should be in the habit of talking about the overall cost structure.

Thank you.