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Avoid Phony Credit Card Processing Fees
Accepting credit cards is a very important part of doing business. In order to get the best value when shopping for a credit card processing company it is very helpful to understand the different fees and charges so you can get the best deal and not have to pay phony fees. Since there are many fees associated with merchant accounts this can be a complicated task. Here is a list of fees and their costs.
Discount Rates
While discount rate is a type of transactional fee I decided to mention it first because it is one of the largest fees. If someone purchases a product or service from a merchant for $100 and the discount rate is 2.5% then $2.50 is charged to the merchant and subtracted from the total.
There are additional fees that can be tacked on the discount rate such as Partially Qualified Fee, Non Qualified Fee and Surcharge Fees. You can incur these charges if during credit card processing the card info is keyed in rather than swiped or if someone pays using a card with a reward plan. These additional fees can add up quickly so it is imperative to find out how much they are.
Generally the discount rate should be in the 2% range and is higher or lower based on factors mentioned in the previous paragraph.
Monthly Costs
The two kinds of monthly fees are monthly minimum fees and monthly statement fees. A monthly minimum fee is charged if the merchant does not do the minimum amount of transactions per month. For example, if the monthly minimum is $20 and the business only does $10 worth of transactions that month, they are charged an additional $10. Monthly minimum fees are in the $15-30 a month range. The other type of fee is the monthly statement fee which is around $10 a month.
Annual Fees
Although some merchant account providers do not charge an annual fee there is a possibility you might have to pay one in the event that you have been provided with a free point of sale machine as part of your contract.
Startup and Termination Costs
Some merchant account providers wave the setup fee. When setting up a merchant account the merchant is required to sign up for a 1-2 year contract. A cancellation fee is charged if the merchant decides to terminate early.
Transaction Based Fees
Transaction fees are charged every time there is a purchase. In addition to discount rate (which was mentioned first) there are 3 more types of transactional fees; address verification fees, transaction fees, and chargeback/retrieval fees.
If during a transaction the credit card is keyed in and not swiped, an address verification fee is charged. Address verification is service that protects the merchant from fraud by validating the credit card owners billing address (it normally cost 5-10 cents each time). Transaction fees are charged to the merchant by the merchant account provider with every purchase and usually cost between 20-30 cents.
If a charge is disputed the merchant can incur a charge back fee. This fee is usually about $25 each time.
Other Fees
The daily batch fee is charged to pay for settling your daily transactions into your account. If on a given day there are no transactions then there is no charge. The fee is in the 5-50 cent range.
If you are doing credit carding processing via the internet there is a gateway fee. This fee goes to the gateway provider and can be as much as $35.
If your transaction needs to be called in you could incur a voice authorization fee, which is in the 75 cent to $1.50 range.
In the event that any credit card processing hardware or software needs reprogramming you could be charged a reprogramming fee.
Bogus Fees
Watch out for low introductory discount rates that spike after a couple of months. Also make sure that the discount rate is applicable to all credit cards.
Understanding credit card processing fees is paramount when shopping for a merchant account provider for your business. You now have a better understanding what the fees are and how much they should be so you can get a great deal and avoid paying too much.
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