Everything About Merchant Account Fees

One of the most confusing aspects of obtaining a merchant account can be understanding all the dizzying array of fees involved. Understanding merchant account fees is important as you look at various merchant account offerings and select a merchant account provider. Knowledge is power, and knowing these fees upfront will give you a tremendous advantage as contact merchant account providers. But as with any business decision, fees are just one part of the equation, and you should consider other factors such as ease of setup, ease of use, customer service, professional attitude, integrity, and reputation.

These are various fees you may run into that you need to look out for when obtaining a merchant account.

Other Merchant Account Fees Explained:

One of the most confusing aspects of obtaining a merchant account can be understanding the dizzying array of fees involved. These articles will explain all the various fees you may run into when obtaining a merchant account, as well as some hidden fees and other junk fees you need to look out for.

Discount Rate

The discount rate will usually make up the majority of your costs, and therefore is the most important fee of all. The discount rate is simply a percentage charged on each transaction. It is usually lower if you are swiping cards, and higher if you are keying them in for MOTO, Internet, or other card-not-present transactions. For example, if you are set up with a discount rate of 2.5%, and you charge a customer $100, the transaction fee would be $2.50.

Transaction Fees

This fee is charged to process each transaction. It’s charged on every transaction, regardless of whether the transaction is approved or declined. Common transaction fees are 20 cents for swiped and 30 cents for keyed transactions. These fees can be slightly higher for wireless transactions.

PIN Debit Transaction Fees

These fees only apply if you accept debit cards and have a PINpad attached to your terminal. This fee is a fixed transaction fee and is usually around 70 cents. Some processors, however, charge a low transaction fee (around 20 cents) and then bill you the debit network fee, which varies depending on the debit network.

Address Verification Service Transaction Fee (AVS)

Some processors charge this fee when you settle your daily batch and transfer the funds into your bank account. If you do not have any transactions on a particular day, you are not charged this fee. This fee can range from 5 cents to 50 cents.

ACH / Daily Batch Fee

Some processors charge this fee when you settle your daily batch and transfer the funds into your bank account. If you do not have any transactions on a particular day, you are not charged this fee. This fee can range from 5 cents to 50 cents.

Monthly Statement / Support / Service Fee

This fee is charged by your processor or merchant service provider and is a fixed fee, regardless of the number of transactions. This fee provides you with a monthly statement, as well as any 800 toll-free customer assistance/support you may need on your account. Usually this fee is around $10 per month, but it can be as high as $15.

Internet Gateway Fee

This only applies if you are using an Internet payment gateway and does not apply if you are using software or a terminal. The gateway fee is a monthly fee that is usually billed directly by the gateway provider, although sometimes it can be billed through your merchant account. The gateway fee can be as high as $30 per month. Sometimes there can be an additional per-transaction fee that the gateway provider may charge. This is in addition to any transaction fees charged by your merchant account provider.

Voice Authorization Fee

This fee is only charged when you call in your transaction to an 800 number. It is useful if your terminal or software isn’t working and you need to perform an authorization. Most merchants do not use the voice authorization service. But if you do, the average cost ranges from 75 cents to $1.50 per voice authorization.

Monthly Minimum Fee

A monthly minimum fee is not an extra fee but rather a minimum amount that your merchant account provider requires you to generate each month. If your monthly fees are less than this minimum, then you are charged the difference. For example, if you have $20 in fees in a given month, and your account has a $25 monthly minimum on it, you will be charged an additional $5 to meet the monthly minimum.

Surcharge Fee / Partially-qualified Fees / Non-qualified Fees

These fees may appear under any of these three names, but they are all essentially the same. These fees are all related to an additional discount fee that some cards are charged, and only apply to certain card types. They do not apply to the majority of consumer cards, but they do apply to some business, corporate, rewards and international cards. In general, these fees range from an additional 0.5% to 2.5%.

Application / Setup Fee

This is charged when your account is set up. This fee used to be charged for all new merchant account applications, but it is not as common anymore and most providers do not charge it.

Reprogramming Fee

This is charged if and when you need to reprogram a piece of existing equipment or software. It takes time and effort to program terminals and software, and as a result merchant providers, terminal vendors and software vendors sometimes charge this fee.

Chargeback/Retrieval Fee

Chargebacks and retrieval fees are related to a customer or issuing bank disputing a transaction. Common reasons for such a dispute are: the customer doesn’t recognize the charge; the product or service was not as described; or someone fraudulently used the customer’s credit card. A merchant will have a chance to refute the dispute by providing a written response and documentation.

Annual Fee

This is the annual amount that is charged for your merchant account by your processor.

Cancellation or Termination Fee

Almost all merchant accounts have some sort of cancellation or termination fee. There is a significant cost in setting up and maintaining a merchant account for a business, and this fee helps recoup some of the losses should a merchant cancel, especially in the beginning. However, most providers are willing to reduce or eliminate this fee should you have unresolved problems or issues. The cancellation or termination fee should be a fixed amount: Beware of providers that want to charge a variable cancellation fee. For example, some providers will charge you the number of months left on our contract term times the average fees you have been paying each month. Under these conditions you could be liable for thousands of dollars. Check with your provider as to their specific policy.

Hidden / Junk Fees

Unfortunately, there are plenty of hidden and bogus fees out there.  One of the most common hidden fees is an extremely low “teaser” rate that goes up after a few months of processing. This usually involves a condition that’s buried in your contract allowing the provider to raise the discount rate at will, or when you do not meet certain volume targets. Another tactic is to have a teaser rate that only applies to one specific card type in one specific category, then charge higher rates on other cards and categories. Junk fees come under a variety of different names, such as file fee, security fee, audit fee, conversion fee, over-limit fee, excessive transactions fees, and billback fees.

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