Discount Rate

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What Is A Discount Rate?

A discount rate is the rate merchants pay for each credit or debit card transaction they process.

Discount Rate Explained

Today, nearly 200 million American adults have a credit or debit card. Accepting payment cards isn’t free, but to most merchants, it’s worth the cost.

Part of that cost is a merchant’s discount rate. This rate is the percentage of each transaction that merchants pay to their credit card processor.

If you own a business, the actual discount rate you’ll pay depends on a few factors. Accepting cards online tends to be slightly more expensive than taking them face-to-face. Certain types of cards, such as rewards cards, are more costly to process. Your industry also has an effect.

In general, merchants can expect to spend between one and three percent of their processing volume on discount rates.

With many pricing plans, fees are charged as both a percentage of the transaction and a flat amount. For example, on your statement, you might see a discount rate of 1.79% + $0.25. The $0.25 is often referred to as a transaction fee.

Processors can charge discounts daily or monthly. With a daily discount rate, your processor will deduct your rates from your daily deposits. You receive a net deposit amount minus your fees for that day.

With a monthly discount, you receive a gross deposit amount. Your fees are then deducted the following month when you’re billed for your statement.

Your discount rate is one of the most important factors when choosing a processor. While there are unavoidable costs involved in processing cards, each processor can mark up those costs.

With some pricing plans, you’ll see your exact discount rates for various transactions on your statement. If you have Interchange Plus pricing, for example, some processors show your exact rates for each card type.

With other pricing plans, your discount is bundled into one fee, so you don’t see exact numbers.

If your rates are too high, talk to your processor. They might be able to set you up with a different pricing plan or remove other fees. If necessary, you can close your account and find a more affordable merchant account provider.

Keep in mind that your discount rate is one piece of your overall processing costs. These costs can also include transaction fees, chargeback and refund fees, statement fees, PCI fees, and more. Consider all of these factors when you review your account pricing.

Discount Rate Examples

Let’s use our above example of a discount rate of 1.79% plus a $0.25 transaction fee.

If you run one transaction of $100, you’ll pay a discount rate of $1.79 plus $0.25, for a total of $2.04.

If you’re set up for daily discount billing, your processor deducts $2.04 from your deposit. You receive $97.96.

With monthly billing, you receive $100 and pay $2.04 as part of your bill the following month.

Each day and month, you’ll have multiple transactions with different discount rates for each one.

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