How Does the Transaction Process Work?
Essentially, the transaction process is a series of purchases, beginning with the cardholder.
- The cardholder purchases goods or services from the merchant.
- The merchant, in effect, sells the transaction to the acquirer and is reimbursed the amount of the transaction, less an agree-to discount (your discount rate), by the acquirer.
- The acquirer then submits the ticket to the issuer for payment, via the MasterCard or Visa clearing and settlement system.
- The issuer bills the cardholder.
- Finally, the cardholder repays the issuer for the goods or services originally purchased from the merchant. The issuer has already paid the acquirer the transaction amount, less the interchange fee.
From the cardholder's point of view it seems as if he or she is paying the issuer for the goods or services originally purchased from the merchant. In fact, the cardholder is actually repaying a loan from the issuer.
Your Discount Rate
In the hospitality industry, Visa and MasterCard have established sixteen different pricing levels for their respective card types. This often leads to confusion for merchants trying to assess the varied pricing in proposals they receive. At First Tennessee, we prefer to fully disclose our processing costs by "unbundling" them. This helps our clients fully understand what rate is paid based on transaction qualification as determined by Visa/MasterCard. For any processor, there are three fee components of a discount rate: Interchange, Assessment, and Processor Revenue.
What is Interchange?
Visa and MasterCard charge a processing or "interchange" fee on every sale. Interchange is paid to the cardholder's issuing institution and reflects processing expenses, including the cost of credit and fraud losses. This fee is determined by the type of card presented, the type of business that is accepting the card, and the processing environment. Interchange provides revenue to the issuing bank, not the card processor. All processors must pay the same interchange rates.
What is assessment?
Assessment is the amount paid to the associations of Visa and MasterCard. For all bankcard transactions, a processor must currently pay Visa 0.084% and MasterCard 0.095%. Again, this provides no revenue to processors and all processors pay the same assessments.
How can I get the lowest interchange rate?
In order to qualify for the lowest interchange rate, the card's magnetic stripe must be read by the terminal (i.e. cardholder is present) and sales must be deposited and settled daily. The processing rate will be higher for a transaction manually keyed or not deposited and settled through the terminal until the next day.
What is an Authorization, and how does it work?
Authorizing a transaction helps protect you against fraudulent card use, and confirms the cardholder's account is valid and within the available spending limit. You can obtain an authorization two ways. Either electronically through a point-of-sale terminal, or through a voice authorization.
It is important to obtain an authorization whenever possible with special consideration to the following instances:
- The total transaction amount is above your property's floor limit.
- The card is not signed.
- The sales draft has no merchant imprint.
- The transaction involves suspicious or unusual circumstances.
What is a Chargeback?
Occasionally, a cardholder will be billed but will dispute a transaction. A chargeback is a monetary request for information where the property's checking account is debited for the amount of the chargeback pending the outcome. This is different than a Retrieval Request, which is a non-monetary request for information and the property's checking account is not debited.
Chargebacks can occur for the any of the following reasons:
- Participation in the transaction or sale
- Performance and/or quality of the merchandise or services
- Delivery of the merchandise and/or services
- Breach of any term, condition, representation, and warranty of the transaction
- Amount of the charge