A non-qualified merchant discount rate or non-qualified rate is a merchant discount rate charged to businesses which are deemed as high-risk.
A non-qualified merchant discount rate is usually the highest discount rate a business can be charged for accepting credit cards. The non-qualified merchant discount rate typically applies to businesses in a sector which has a very high risk of chargebacks and fraudulent transactions.
Many countries have laws in place which require credit card issuers, merchant acquirers or payment networks to reimburse cardholders when their card information is used fraudulently, which means that these service providers typically bear the risk of loss attached to fraudulent transactions.
Chargebacks – in which cardholders demand reimbursement of money charged to their account and transferred to a merchant because the merchant overcharged them or did not deliver on services paid for pose another risk to payment service providers because they can involve a costly mediation process.
Some industries are governed by special consumer-protection laws which grant special rights to consumers who want refunds on charges. Other industries involve the provision of services whose delivery may be difficult to prove because it does not involve the sale of a physical product – making the mediation of disputes between consumers and merchants difficult.
Because payment service providers are dependent on the merchants which form their customer base, they often compensate consumers themselves rather than rule against their merchant customers. In order to compensate for the increased risk of servicing high-risk merchants, payment service providers charge high merchant discount rates.
The merchant discount rate is typically charged by a merchant acquirer and normally includes the merchant acquirer’s, payment processor’s, payment network’s and card issuer’s fees.
As a business, the higher the merchant discount rate you are charged every time you accept payment by credit card, debit card, mobile wallet, online payment service or any other payment service which is processed by a merchant acquirer, the smaller your profit margin on that sale will be.
Getting quotes from multiple merchant acquirers before you settle on a solution for accepting online payments or electronic payments via POS terminals is recommended. Doing this allows you to select the best offer which matches your needs and to avoid paying more than necessary in fees.