Why Accept Discover Cards? Rates, Card Brands and Freebies!

discover_logoDiscover card acceptance was an expensive option when setting up a merchant account at one time.  Discover wasn’t widely accepted and the locations that specifically wanted it, had to go directly to Discover to have the ability to process added to their credit card machine.  It was also widely known that their processing rate was much higher than accepting visa and mastercard.  Also the cards were processed separately and the customer would receive a separate bill from Discover.  Because of this, many merchants were happy to pass on accepting Discover since the few customers that carried Discover were also likely to have a Visa or Mastercard.

Although Discover has made drastic changes to their business model, these perceptions still persist today.  The fact is that Discover acceptance goes right along with Visa and Mastercard.  My new merchant services customers automatically get set up to accept those cards along with Visa and Mastercard.  There is no extra paperwork necessary and the fees are the equivalent to Visa and Mastercard fees.    Billing and the processing is also integrated with the other card brands all on the same easy to read statement.  Not only is there no reason to NOT have the capability to accept Discover cards, there are many reasons to PROMOTE your customers to use their cards.

1)     Discover Cardmembers have higher average tickets than Visa and Mastercard
2)     Discover has America’s #1 ranked cash rewards program
3)     78% of consumers with a rewards card use it as their primary card
4)     Cardholders of rewards cards spend nearly 4 times as much monthly
5)     Customer satisfaction by accepting rewards cards of choice will help a merchant stay competitive
6)     Over half of Discover card users won’t return to a location that rejects their card
7)     By accepting Discover you are also accepting card brands used by international travelers

One of the many advantages to accepting the Discover card is the global usage with their extended card network.  There are over thirty issuers of Discover cards including the GE, Walmart and Sam’s Club, making Discover the sixth largest issuer of credit cards in the U.S.  Also by accepting Discover merchants also are automatically set to accept other cards that are part of their network.  These include:

1)     Diner’s Club International, which account for an annual volume of $27 billion

2)     JCB, Japan’s card accounts for over 3 million visitors a year spending over $14 billion

3)     Union Pay, the only card network in mainland China with about 2.5 billion card holders

4)     BC Card, the largest South Korean network with 31% market share

5)     DinaCard, a growing Serbian card network

I’ve also noticed what an incredible job that Discover has done over the past several years to build relationships with their card members, with those in the payment card industry and with the merchants.  Of course it’s widely known that Discover leads in customer satisfaction and it’s widely advertised about their 1% to 5% cash back as well as their late payment forgiveness.  What the average consumer won’t see is their commitment to the payment card industry and their participation in the Electronic Transaction Association as well as their major sponsorship of regional events, such as the Midwest Acquirers Association, South East Acquirers Association, North East Acquirers Association and the Western States Acquirers Association.  The company’s generosity at these events is only outdone by their incredible representatives.

Beyond the advantages I’ve listed above, the Discover Network also goes out of its way to provide even more value for businesses.  One of the perks I most appreciate about them is their complimentary promotional material, including signage for all card brands as well as check presenters and other free items.  Visit this site and sign up to receive your free Discover items .

With these recent major changes to the Discover Network and their dedication to serve the payment card industry, the card holders and their merchants that accept the cards, it’s no wonder that they continue to expand and experience great profits as well.

Interchange Basics When Accepting Credit Cards

When I talk to a new business owner looking to accept credit cards, one of the first questions is naturally, “How much does it cost to take credit cards?”  However, if you talk to a business owner that already accepts credit cards, if he’s completely honest he’d probably answer, “I have no idea how much it is I’m paying or how they come up with that bill every month!”  I’ll do my best in simplifying a very complex topic so new and old owners alike can feel more comfortable in assessing the costs.

When it comes to paying merchant services fees, businesses are either paying way too much for a very simplified billing structure,(ie. Square) or may or may not be getting a great rate with a more complex billing plan.  What makes this even more confusing is that there is no uniform billing structure in the merchant payment processing of bank cards.  Each processor has its own format and even within each processor, there are numerous different fees that may or may not be charged as well as various pricing methods.  I often wonder if many of the processors purposely utilize confusing billing methods to keep the merchants in the dark.

I do know that a big factor in the complexity of merchant statements is the wholesale cost to the merchant provider in the form of interchange.  Interchange is the underlying consistent cost to every processor that ultimately goes to pay the banks that issue the credit cards.  Every processor is assessed the same buy rates on the cards they process.  This cost, as well as others, must be passed on to the merchant.  It is up to the processor how they pass the costs on, mark them up and bill the merchant.

So often I get asked, “Okay, how much is interchange?”  And that’s where I take a deep breath, because it’s not an easy answer.  Interchange fees aren’t just one rate.   Anyone can go to the Visa and Mastercard sites and see the rate structure for themselves.  Click the links here for Visa and MasterCard.  As of this writing, the April 2013 structure is in effect, but category changes, rates change and additions are added approximately every April and October.  You’ll notice that Visa’s rate sheet is ten pages with about 100 different categories.  Mastercard will just make your head spin with 131 pages and hundreds of categories!   Basically the various categories have different fees consisting of a percentage and a transaction fee.  These rates are based upon different variables including the type of card, industry type accepting the card, how the card was processed, and even the issuing bank.

So the next question I often get is, “Well, can you give me a ballpark of what interchange is?  Maybe an average would be helpful”.  Unfortunately, even that is going to fluctuate greatly based upon the business model, average ticket, card mix and other factors.  It will even vary from month to month for each merchant.  I’m very reluctant to quote any kind of estimates, since I can’t predict what type of cards will be accepted.  However, by looking at the charts, interchange can range from .05% and 22 cents for regulated check cards all the way up to 3.25% and 10 cents for some Mastercard credit cards.

Interchange FlowAlthough interchange is the largest set cost to the processor, there are additional processing costs.  Dues and Assessments, NABU fees, APF Fees, Cross Border Fees, FANF and so on are all paid to the card brands.  For more detail, a quick google search should leave you scratching your head.  For now, let’s just say Visa, Mastercard and Discover will get paid roughly .10% and about 2 cents per transaction on volume and a Visa Fixed Acquirer Network Fee that starts at $2.00 a month per merchant.

Processors also will have a cost to process through the networks.  These are known as authorization fees or transaction fees.  All of these fees are before operational costs, marketing costs, risk and loss costs etc.  All must be covered and somehow a profit must be made as well.  Depending on the rate structure a merchant has, he may not see all of these fees clearly, but the payment processor is charging, in some manner, enough to cover their costs and also include a margin for profit.

As you can see, even as simplified as I can make this, there is a high level of complexity with Visa/Mastercard/Discover processing costs.  As a merchant, you don’t necessarily have to be an expert at interchange tables, but you’d better have a relationship with a trusted payment card advisor that will help keep the end costs reasonable.

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