Qualified vs. Non-qualified credit card transactions

January 27th, 2010 by Chris

When you are a merchant who processes credit cards, especially card-not-present transactions (ie, over the Internet or phone) you will typically run into two rates on your statement. You will have a discount rate for qualified transactions, and you will have a discount rate for non-qualified transactions.

Typically the discount rate for qualified transactions is the headline you see when you sign up for a new merchant account, and sometimes providers will purposefully lowball you a lower qualified rate (2%), but hit you with a bigger non-qualified rate (4%), knowing that many more of your transactions will be processed at the higher rate.

Each provider has rules for what constitutes qualified and what constitutes non-qualified. Typically for an Internet merchant you must run an AVS (address verification system) check and run the CVV code from the back of the card for the transaction to be qualified, but even then. If the card is certain types of reward cards, or business cards, or from a foreign bank, you can still be non-qualified (this is how the banks fund their reward programs), and you can’t do much about that.

Now, pay attention, if you also send incomplete information to your payment processor, such as Authorize.net, you may also be downgraded to non-qualified. This is one of the reasons I have complained about Interspire and CubeCart not using the Authorize.net API fully. Just because a field isn’t required by Authorize.net for the system to work, doesn’t mean it isn’t needed by the merchant or otherwise would be beneficial to include.

I recently ran into this problem with one of my sites where I had a custom shopping cart developed. The developer did not set up the Authorize.net module to send an order ID with each transaction, and Visa apparently requires some sort of invoice ID (it can be meaningless and random, but it must exist) to be sent with each transaction, or they downgrade you. So I had been getting 100% downgraded Visa transactions. Lesson be learned, go over your statements carefully or it could cost you (it definitely cost me).

The fix was simple for my custom cart, but it was knowing it needed to be done that was key.

So, when using software, make sure you pass everything possible to your payment processor, even if you think it is redundant, even if it isn’t required, if you have the information, pass the information. And when signing up for a new merchant account, ask for the discount rate for non-qualified transactions as well.

One Response to “Qualified vs. Non-qualified credit card transactions”

  1. Ben Dwyer  Says:

    Mid and non-qualified surcharges can be totally avoided by selecting a processor that offers interchange pass through pricing instead of tiered pricing.

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