Merchant accounts are comprised of a variety of fees and charges which are charged to merchants for the different services which are being provided. How these fees are outlined, caculated and assigned can be complex. Below we've provided general information as to the structure of these fees to ensure you're not taken advantage of.
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 or taking Internet transactions. For example, if you are setup with a discount rate of 2.5%, and you charge a customer $100, the discount fee would be $2.50.
Transaction Fees: The per transaction fee is the fee charged by the processor to process each transaction. This fee is charged on every transaction, regardless of whether or not the transaction is approved or declined. It is charged on Visa, MasterCard, Amex, and Discover cards. Common transaction fees are 20 cents for swiped and 30 cents for not swiping (keying). Transaction fees can be slightly higher for wireless transactions.
Pin Debit Transaction Fees: These only apply if you will be swiping cards and you have a pin pad attached to your terminal, and it only applies to debit cards. This fee is a fixed transaction fee and is usually around 70 cents. Some processors however now 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 Fee: This only applies to merchants who are not swiping transactions. This fee is usually 5 to 10 cents and is usually lumped in with the transaction fee above, although some processors charge this as a separate line item. By having AVS, it provides you with valuable address and zip code lookup on the cardholder, and as a result helps reduce fraud. AVS is mandatory by Visa and MasterCard on all keyed accounts where cards are not going to be swiped.
ACH Fee or Daily Batch Fee: This fee is charged by some processors when you settle your daily batch and transfer the settled funds into your bank account. If you do not have any transactions a particular day, you are not charged this fee. This fee can range from 5 cents to 50 cents or so.
Monthly Support / Service Fee: The monthly fee is charged by your processor or merchant service provider and is a fixed fee, regardless of the number of transactions you have. This fee provides you with a monthly paper 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 can be as high as $15 or $25. This is a reasonable fee and it is not uncommon to have this fee on a merchant account.
Internet Gateway Fee: This only applies if you are using an Internet Payment Gateway, such as Authorize.net or any other of the same. It does not apply if you are using software or a terminal. The gateway fee is a monthly fee assessed by the gateway provider, and is usually billed directly by the gateway provider, although sometimes it can be billed through your merchant account by your processor. The gateway fee can be as high as $30 per month. Sometimes there can be an additional per transaction fees that the gateway provider may charge. This is in addition to any transaction fees charged by your merchant account provider.
Voice Activation 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 per voice authorization ranges from 75 cents to $1.50 and is set by your merchant account provider.
Monthly Minimum Fee: A monthly minimum fee is not an extra fee but rather a minimum amount that the processor or merchant account provider needs to have in fees. As long as your credit card fees meet or exceed this minimum, you are not charged any extra fees. However, if your monthly fees are less than this minimum, then you are charged the difference up to the minimum. 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. A monthly minimum is a reasonable fee, although sometimes you can get it reduced somewhat if you expect your monthly volume to be low.
Surcharge Fees: These fees can show up under these three different names, but they are all essentially the same thing. These fees are all related to an additional discount fee that some cards are charged, and only apply on certain card types. They do not apply on the majority of consumer cards, but they do apply on some business cards, corporate cards, some rewards cards, and international cards. Check with your merchant account provider as to what these fees are, but in general they will range from an additional 0.5% to 2.5%.
Application / Set Up Fee: This is charged when your account is setup. 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 does take time and effort to program a terminal, as well as software, and as a result this fee is sometimes charged by merchant providers and/or terminal or software vendors.
Chargeback / Retrieval Fees: Chargeback’s and retrieval fees are related to a customer or issuing bank disputing a transaction that was processed. The merchant who charged the transaction is notified of the dispute via postal mail, email, fax, or a combination. Common reasons for a customer disputing a charge are: the customer doesn't recognize the charge, the product or service was not as described, or someone fraudulently used their credit card. A merchant will have a chance to refute the dispute by providing a written response and documentation. The cost for a chargeback is usually around $25 however in some cases we have seen fees for chargebacks as high as $45-50 depending on the provider. This is a reasonable fee that the merchant account provider charges for their processor handling the dispute. As a merchant you should not generally see this fee, unless any of your customers or the issuing bank disputes a charge for some reason.
Annual Fee: This is simply an annual amount that is charged for your merchant account by your processor. Some providers charge it while others do not.
Cancellation / Termination fee.
Most all merchant accounts will have some sort of cancellation or termination fee. There is significant cost in setting up and maintaining a merchant account for a business, and this fee helps recoup some of those 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. As a result this is something that in general you should be aware of but not overly concerned, but check with your provider as to their specific policy. It is most important that you select the right merchant account provider overall in many areas, not just because of one fee. In addition, 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 such a scenario you could be liable for thousands of dollars. Any cancellation or termination fees should be fixed.
Hidden / Junk Fees: There are plenty of hidden and bogus fees out there to be aware of. Unfortunately hidden fees seem to be common among some unscrupulous agents and merchant account providers that don't mention them upfront. A common hidden fee is for a merchant account provider to offer you a teaser rate that is extremely low - but what you don't know is that it's just temporary and usually goes up after a few months of processing. It's usually buried in the agreement 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, and then charge higher rates on other cards and categories.
As for junk fees, these come under different names: file fee, security fee, audit fee, conversion fee, over the limit fee, excessive transactions fees, discount rate fees charged on refunds, and bill back fees. If you see any of those fees you may want to think twice before signing up with that provider.