Posted: by Allison
The Basics to Understanding Merchant Account Fees
A merchant account is a particular account that allows your business to accept credit and debit card payments. For some, the merchant account fees charged by a processor can be complicated and hard to understand. There is no standard model for a credit card processing company. The banks and credit card companies pass through their costs to the processor, who adds their costs of handling plus mark-ups for credit risk and type of business risk.
Processors do not all use the same pricing model, either. The top four credit card providers have released average credit card processing fees for 2019. While a merchant cannot negotiate the credit card charges with the bank or the credit card company, they can negotiate some of the processor’s fees. Negotiating wisely with a processing company will first necessitate understanding how they assess merchant account fees.
How Does the Processing Company Determine Charges?
Each credit card processor assesses accounts differently based on the type of business and processing history. Some of these fees are charged directly from Visa and MasterCard passed through to the merchant. Your cost for processing a payment card is a combined percentage plus a flat fee.
- A flat fee is for the computer network costs that include the hardware, software, and network connection.
- A percentage is added for the financing risk. A credit card is the extension of a small loan that may or may not get paid back. A portion of every purchase is assessed for that risk.
- A processing charge= flat computer network cost + percentage financing risk.
The Processing company bases its percentage pricing on:
- The industry risk (i.e., vape shop vs. established grocery store).
- How the card is processed (i.e., over the phone, ecommerce online checkout, credit card terminal or via a POS terminal in the store)
- Whether the card is swiped, keyed in, etc.
- The annual credit card sales of the business (dollars and number of transactions)
The following are the various fees your processing company will charge you as a merchant.
Transactional Fees: Processing & Transaction Fees
The Processing fee is the listed method each processor uses to Asses fees to a merchant. There are three methods a Processor can use to charge a Merchant:
- Bundled Rate – One fixed rate + Downgrade Fees. The “most favorable” interchange rate is the lowest cost interchange rate that the merchant would pay determined by how they process the transaction, their industry, and how timely the transaction is submitted for clearing. Interchange Fee Plus – The Interchange Fee + Fixed Percentage
- The interchange fee is a fixed fee set by the credit card companies (i.e., Visa, MasterCard, etc.) and charge to the processing companies.
- Tiered Rates
- Qualified: A qualified transaction is one that meets the processor’s standards.
- Mid-Qualified: A mid-qualified transaction occurs when a purchase is downgraded for one or more reasons but is still able to be processed.
- Non-Qualified: A Non-qualified transaction occurs when a transaction is downgraded and is not able to be processed for one or more reasons.
Other factors and fees
A downgrade can occur when a transaction does not qualify because:
- The transaction was keyed in instead of swiped
- The transaction was not submitted for clearing within 1 or 2 days
- The type of card used for the purchase (i.e., Rewards card, premium credit cards)
Interchange Fee Plus: The Interchange Fee + Fixed Percentage. The interchange fee is a fixed fee set by the credit card companies (i.e., Visa, MasterCard, Discover.) and charge to the processing companies.
• Transaction Fees: The transaction fee is a flat, per-transaction fee that is charged on each transaction along with the processing fee. This fee can range from zero dollars and up, but is usually about $.10 for swiped accounts and $.25 for keyed accounts. The fee is charged on all approved or declined transactions, as well as batches and returns. It is a fee to access the processing network. Therefore it is charged every time the network is accessed.
Regularly Scheduled Fees: Administrative Fees
To maintain your merchant account, the processing company charges these flat fees.
- Annual Fee – Some processors charge a yearly fee.
- Monthly Minimum Fee – This fee is the minimum amount that you must pay in processing fees each month. If you do not reach this amount, then you are charged the difference between actual and minimum. Additional Mid and Nonqualified fees are not included in reaching the monthly minimum.
- Statement Fee – This fee is a monthly fee for the delivery of a paper statement to your business.
- Wireless Fee – If you process with a wireless credit card machine, this is your monthly cellular bill.
- Internet Access Fee – If you process transactions over the Internet or through a website, this is an additional fee for all Internet transactions. This fee is another fee some processors use to make an extra penny from their customers.
- Supplies Fee – Some merchants are set up with monthly supplies. This fee is for those supplies.
- Batch / Batch Header Fee – This fee is a fee charged each time a merchant batches out their terminal or software.
- PCI-Non Compliance Fee: Processors usually allow up to 90 days to become PCI Complaint before they start charging the non compliance fee. Make sure you ask your merchant services company to take the PCI test to avoid the fee all together.
Incidental Fees: Authorization, Chargeback & Termination Fees
Incidental Fees are not always charged; they only occur when they happen.
- Voice Authorization – A voice authorization occurs when a merchant calls in to a Help Desk to authorize a transaction manually.
- Voice AVS – Voice AVS means manually verifying the address of a cardholder against the card by calling the card in to the processors help desk.
- Electronic AVS – Electronic AVS is the program in a credit card terminal that will prompt and verify the cardholder’s address against the information linked to the card. This process is done automatically through the terminal.
- Chargeback Fee – This fee is an administrative fee charged when a merchant receives a chargeback.
- Return Fee / Return ACH Fee – A return fee is charged when your bank account comes has insufficient funds when the processor tries to collect payment from you.
- Early Termination Fee – An early termination fee is charged if a merchant closes their account or breaks the contract.
Fees charged by the credit card company
- Discover – This fee is an extra transaction fee for processing a discover card.
- American Express – This fee is an extra transaction fee for processing an American Express card.
Fees You Should Watch Out For
Some processors may try to charge more in fees than are necessary. If a charge in one of these categories occurs, call and ask your processor to break down the fee and explain why it was charged.
- Application Fee: Some companies charge you to apply with them. Unless you are a non-American or high risk business, if a company requires this, find someone else
- Setup or Startup Fee: This is a fee just for getting set up with a provider. Most good providers have no setup fee.
- Sales Transaction Fee: A sales transaction fee could be added to each transaction that a merchant processes. If you are being charged this fee, you should probably find another provider.
- Retrieval Fee: A retrieval fee might be charged for requesting a copy of a transaction receipt. Typically, you shouldn’t be charged when a customer or the processor needs a copy of a transaction from you.
Knowledge will help you find a processor that is a good fit for your business. Contracts can vary depending on which processor you choose; it is essential to go over the costs and terms and conditions before signing. If you are looking to change processors, ask them what their rates are, and then ask them to breakdown your statement.
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