When it comes to choosing which Merchant Account Provider you wish to deal with (there are many of them out there) the one factor that influences most people is the cost. Accepting credit cards can be expensive, so make sure to compare different providers to get the best deal. Read all the fine print, too because you may find some “hidden” charges not mentioned elsewhere.
For the most part the rates and fees listed below represent the range of what most providers will charge. You may find one or two companies that will charge less for one particular fee, but beware that they may make up the loss elsewhere in another fee.
Here’s a basic outline of the approximate rates and fees associated with maintaining a merchant account:
Application/Setup: $0 – $100+ (one time fee)
All providers have an application fee. Some charge it right up front, while others add it into the solution purchase/lease costs.
Hardware/Software: Purchase: $99 and up Lease: $20/month and up
One important note worth mentioning here, stay away from leases if at all possible. It’s always better to purchase from the beginning than pay a lease for the next 12, 24, 36 or 48 months. Why? With a lease you could end up paying three times more than what you would if you purchased the solution outright from the beginning. While a $29.95 monthly lease for 48 months sounds good, in reality it isn’t. Leases are very hard to get out of once started. If your business goes under before the 48 months are up, you still have to pay on the hardware costs until the last penny has been received by the leasing company. Also, the lease fee you see does not include your state sales tax or the amount charged for the damage/loss waiver. If you do go for a lease, always determine the lease’s buyout clause, end of lease terms, and especially beware of clauses that allow the lease company to continue charging you even after the 48 months have passed (they say that you should contact them in writing one month prior to the end of the lease, or they can just keep charging you).
Programming: $0 – $100+ (one time fee)
This usually only applies to retail merchants who have changed from one provider to another. The programming process isn’t difficult, but watch out for the cost. Some providers may nickel and dime you on programming fees. Why do they charge this fee if you use your own equipment? It’s used to somewhat make up for the loss of not selling or leasing you their equipment.
Discount Rate: Standard is 1.49% – 4% per transaction or learn about “Interchange Plus Pricing”
This is the fixed percentage amount that is deducted from the purchase cost. The lower discount rates are for retail establishments while the higher are for Mail Order/Telephone Order (MOTO) and Internet-based businesses. Why the lower cost for retail? The instances of credit card fraud are much lower so banks are able to charge lower percentages for these types of businesses. Depending on your provider and current qualification levels you may want to check into Interchange Plus Pricing.
Transaction: $0.10 – $0.50 per transaction
In addition to the discount rate a transaction fee is also deducted from the purchase cost. Just as with discount rates, transaction fees are lower for retail businesses while slightly higher amounts are charged for MOTO and Internet establishments. Address Verification (AVS) may either cost an additional fee, or may be included in the base transaction fee.
Monthly Minimum: $20 – $25 per month
The fee is based on your transaction and discount rate fees from your credit card sales each month. For instance, say your bank charges $25 as a monthly minimum, the transaction and discount rate fees collected by the bank must be equal or greater than $25 each month. If this is the case no monthly minimum will be charged. However, if the fees collected for that month do not meet the $25 minimum, you will then be charged the difference. Not all processors have a Minimum Fee.
Gateway Access: $0 – $25+ per month
Since in most cases, the Secure Payment Gateway provider is a separate company from the Merchant Processor, they charge extra fees. For every month that you are on their system, you pay an access fee. The big three gateways (mentioned above) all charge from $15 to $25 per month for gateway access. Find a smaller gateway provider or a Merchant Processor with their own free gateway to get the best deal.
Statement: $10 – $15 per month
The statement fee is charged because each month you will receive a statement from your processing bank detailing all the transactions for that particular month. It’s very much like your credit card or telephone bill. In many cases there is no statement mailed, because the statement is available as an Online Report, so the fee may be called an Account Maintenance or Technical Support fee.
Daily Close-Out: $0 – $0.15 each day
Associated with software and terminal processing solutions where at the end of every business day you close-out all your transactions. Most providers no longer charge this fee.
Address Verification System (AVS): $0 – $0.05 per transaction
The AVS service checks to see that the billing address given by the customer matches the credit card. If you opt not to use AVS, VISA and MasterCard will not support your transactions and will charge you an additional .17% to 1.25% on those sales. Most merchant accounts come with AVS at no extra charge. If there is a charge, it is combined with the per transaction fee in most cases. The AVS service works only with US credit card holders. Currently, there is no AVS service in place for non-US credit card holders.
Chargeback: $5 – $25 per instance
A chargeback occurs when the cardholder disputes a charge. A large number of chargebacks can cause your merchant account to be cancelled. This can make it difficult to get another merchant account for your business. In some cases you may not be able to get another merchant account for several years.
Reserve: Varies, ask the provider for details
Some providers will require you to have a reserve account where the amount is determined by your businesses estimated sales receipts. A reserve is almost always charged to a Non-US based merchant who is trying to obtain a merchant account. Also, businesses that do a high volume of sales each month may be charged a reserve fee.
In most cases, the reserve fee is used to cover any chargebacks on the merchant’s account.
Next Page: Purchase or Lease?