Discount Rate refers to the cost charged by a merchant service provider for executing a merchant’s credit and debit card transactions. It’s typically depicted as a percentage of the transaction amount, although it may also encompass a fixed per-transaction fee, adding to the overall cost of the transaction.
The discount rate is a broad umbrella that comprises several different types of fees, including, but not limited to, the following:
- interchange fees
- card network fees
- payment processor’s markup
These constituent parts can vary in their proportions, adding complexity to the total rate. It’s critically important for merchants to have a solid grasp of the individual elements that make up their discount rate, as it has a direct bearing on their profitability and cost management.
It’s also worth noting that negotiating power regarding the discount rate often depends on the merchant’s sales volume, with higher volumes potentially leading to lower rates.