Industry -
The credit card processing industry is often confusing to the uninformed. We at First Bancard LLC take pride in having the only informational website in the industry.
Retail vs. MOTO/Internet -
The first type of merchant was considered a "retail" merchant: a storefront location where a card is swiped and the sales draft is signed. Merchants who are in the Retail category get quoted a "Qualified Discount Rate."
Because many businesses do not operate on a face-to-face basis with their customers, the card associations (V/MC) created a second category for merchants: MOTO (Mail Order / Telephone Order) or Internet. This category of merchants primarily "key-in" their credit card transactions, since the merchant's sales are not done face-to-face. Merchants who are in the MOTO/Internet category also get quoted a "Qualified Rate," but for all intent and purpose can be considered a "Mid-Qualified Rate."
Let's say you are a Retail merchant, and instead of swiping your customer's credit card, you key it in. Due to the fact that keying in a transaction is more risky than swiping, you will get surcharged a Mid-Qualified Rate. Also, if your customer presents you not with a consumer credit card but with a corporate, government, or foreign credit card, you will get surcharged a Non-Qualified Rate, because these types of cards are the riskiest cards in the industry today. The reason why is because there is no "ownership" of the card as compared to a consumer having an agreement with an issuing bank (i.e. a consumer credit card). Whenever a merchant is assessed surcharges due to the transaction qualifying at the Mid-Qualified or Non-Qualified level, these transactions are known as downgrades.
Interchange -
Interchange is the network which facilitates the flow of funds from issuing banks to acquiring banks. It is a also a fancy industry word for "cost." The interchange rates are the rates prescribed by the card associations (V/MC) to charge acquiring banks and credit card processors for the processing of credit card transactions.
Interchange rates are based upon risk. For instance, a transaction that was swiped is less risky than a transaction that was keyed-in because the customer physically handed over that card to be swiped. Also, a purchase made with a debit or check card is less risky than with a credit card because the funds are instantly debited from the cardholder's bank account. Because the interchange rates are standard throughout the industry, every credit card processor essentially has the same costs. But this is where trust becomes a major factor, because it is the surcharges, fees, and hidden costs that a credit card processor will not tell you about which makes choosing a payment processor a very important decision.
