One of the most popular questions that I am asked by prospective clients is: “What is the difference between a qualified, mid-qualified, and non-qualified fee.”  First, I am impressed that the merchant is revealing an awareness of the components of a tiered rate structure.  Next, I forewarn the merchant that there are several conditions associated with each type of fee and that at the end of our discussion, a test will be given. 

Of course, I’m just joking but this blog entry / article may serve as a “cheat sheet” when gaining insight on the topic (i.e., becoming acquainted with the differences between the qualified, mid-qualified, and non-qualified rates).

Perhaps the best way to explore the subject is through an exchange between merchant and merchant account provider (MAP).  The first scenario is a dialogue between a retail merchant (RM) and MAP:

RM: I am just opening a small car dealership and plan to swipe just about all my customers’ cards.  I heard that it is cheaper to swipe cards than key them into the terminal.  I suppose then that all my transactions will be considered “qualified?”

MAP: Unfortunately, not all your transactions will be at the lower qualified rate.  It is likely that most of the cards you process will be in the qualified category, assuming that a given credit card’s magnetic strip is properly read by the terminal at the time of transaction and the customer’s signature is obtained.

RM: I anticipate very few problems where a credit card will not be able to be successfully swiped.  Assuming I encounter no difficulty with swiping cards, are there still certain credit cards that won’t be considered qualified?

MAP: Yes, typically rewards cards will be assessed a mid-qualified rate when one has a retail account.  Some rewards cards can downgrade to the non-qualified rate, too where you will incur the highest fee.  Corporate and International cards may also fall to the non-qualified rate.

RM: What if I swipe for an authorization?  Can I still receive the lowest cost when finalizing the sale?

MAP: As long as the authorized amount equals the deposit amount, and the transaction is batch transmitted electronically within a day of the authorization, you can still receive the lowest cost.  The transaction has to be authorized electronically as well (not called in, for example).

RM: What if I key in the transaction?  How does that affect my rate?

MAP: Generally, a keyed in transaction will be categorized as a mid-qualified transaction or non-qualified transaction, depending on several factors.  Again, the type of card you receive is all-important.  Check cards and standard cards will prevent the transaction from downgrading to the non-qualified rate.  Also, be sure to use an Address Verification Service (AVS) and key in the customer’s address because if there is an AVS mismatch where the customer’s billing address does not match the address listed on the card, the transaction will downgrade.

RM: How can I avoid the non-qualified fee?

MAP: As a reminder, try to swipe credit cards whenever feasible.  Use the AVS system and batch out within 24 hours after a card has been authorized.  While you won’t have total control over which credit cards your customers will use, remember to take advantage of “level 2 processing.”  Here, you would input additional information into the terminal when you accept commercial or corporate cards, including customer’s reference number, tax amount, and destination zip code.

RM: Thanks for explaining how qualified, mid-qualified, and non-qualified transactions are determined.  I’m going to hand the phone to a friend who plans to open an E-commerce Internet- based business as he may have additional questions on the subject.  Here he (IM) is:

IM: I just overheard about trying to contain the cost of corporate cards by using level 2 processing.  Can I use that system, too?

MAP: Yes, our payment gateway, Authorize.net, enables you to use level 2 processing.  As an Internet merchant, if you don’t employ level 2 processing, corporate cards will be valued at a non-qualified rate.

IM: As an Internet merchant, how can I avoid the non-qualified transaction category?

MAP: Similar to a retail merchant, ensure that you use AVS and batch out the same day, if possible, after card authorization.  Please note that the transaction amount has to be equal to the authorized amount, and the transaction shipping date should be within seven days of the authorization date.  Again, use level 2 processing for commercial or corporate cards.

IM: What about rewards cards and International cards?  Will they go to the non-qualified transaction bucket?

MAP: Typically, they would.  Some rewards cards may go to the mid-qualified category, but most would tend to fall to non-qualified status.  The better the rewards card, the more likely it is to fall to the non-qualified bucket.

IM: Can I get the same qualified rate as my friend (RM)?

MAP: Unfortunately, no, as your friend is swiping the card and you or your customer are keying in the information for your business.  All merchant account providers charge less for swiped transactions than keyed in transactions.

IM: So I can’t ever get a qualified rate?

MAP: You have to be careful with terminology.  Your “qualified rate” is tantamount to a retail merchant’s “mid-qualified rate.”  If your business is run via the mail, telephone, or Internet, and transactions are made without the credit/debit card being present, then there are different merchant processing terms used.

IM: Thanks for explaining the differences between these categories.  I now understand these tiers.

MAP: I’m so glad to be of service.  It’s so important to understand the nuances between the qualified, mid-qualified, and non-qualified transaction buckets and their associated rates.