A lot of people who are just entering the world of the eCommerce or trying to opt in for the merchant account service tend to face new definitions which they have never heard about. One of them is a “discount rate”, which confuses a lot of businessmen. You shouldn’t understand the definition literally, as merchant account discount rate describes the percentage fee which is charged by a financial institution (usually a bank) for providing bank card services to a merchant. So, in simple words it is a rate which you will have to pay to the bank from each transaction, because bank is processing all of the bank card payments of your business. The rate itself depends mostly from the industry you are working in, as well as transaction volume and average payment amount. Every merchant account service provider has different discount rate, for offline business it is usually somewhere between 1% and 3%, for online it is usually higher. For example, PayPal is charging 3.4% + €0.35 EUR for each transaction. The discount rate goes down as your volume goes up and could be as low as 1.4%.
Example of merchant discount rate definition
For example, if the bank or any other payment service provider has discount rate of 3%, that means that from every 100 EUR sale business itself will get only 97 EUR, the rest 3 EUR will be charged by the merchant account provider as a service charge. Note, that in the discount rate financial institution has already included the interchange fee, which could be completely different depending if your client is using MasterCard Prepaid, Visa or American Express cards.
Discount rate depends from the industry
If you are working in a so-called high risk business industry, then discount rate will be much higher. High risk industries have more bad credit customers as well as higher rate of the chargebacks. This all costs the financial institution which processes the payment to do more work in order to minimize your risks of losing money. Be prepared to pay up to 10% discount rate in the high-risk industry. If you will choose the cheap merchant account service providers, then you might end up with higher number of hackers, basically more headache and slower processing times.
Also, you need to remember that different merchant account providers will have different terms and condition, and may charge you more than just discount rate which is usually publicly available on their website. In order to avoid any disappointment, contact our manager as we are going to be able to find the best solution for your business. EU Merchant Account specialists have more than 5 years’ experience of working in IT and Financial industries, so you won’t be disappointed!