Merchant Accounts- Rates and Fees

A merchant account facilitates electronic money transfers and transactions. It is used for processing credit/debit card payments as well as accepting gift cards and additional variety of electronic payment. Like any other service, merchant accounts come with a certain charge or a fee, which is based on Interchange- the base rate, decided by Visa and MasterCard as a standard for all merchant account providers.

There are three types of merchant accounts with as many as 7 different sub-categories associated with each - all of which have different rates, fees, and charges. The primary concern, before you get down to considering the rates and fees, is to choose a merchant account and processing method that best suits your business.

A retail merchant account comes with the lowest discount rates and transaction fees. However, this account is most profitable to a business that is able to swipe at least 80% of their credit card transactions through a credit card terminal. A mail order merchant account is an account that is used by businesses that will be punching in most of their credit card transactions on the keypad of a credit card terminal after receiving orders over the phone, by mail, or out in the field. Internet merchant accounts are used by businesses that sell products or services online and wish to accept real-time credit card payments. Then there is the option of touchtone credit card processing. It is popular due to its portability and reasonable price. A store and forward merchant account also comes with low fees and rates and is an account that allows a merchant to accept credit card transactions on the go and forward them to the processor at a later time. A wireless merchant account is an account that is used with a wireless credit card terminal. It allows a merchant to accept credit cards in the field and get a real-time authorization of decline for the transaction.

Following are the typical fees associated with a merchant account: -

Application fee- All merchant account providers have a one time application fee, which could be les or more than $100. This fee is either charged right in the beginning or is added to the solution purchase/lease costs.

Hardware/Software- Try and stay away from leases or you’ll end up paying 3 times or more then involved in purchasing the solution. Leases usually have certain damaging clauses that must be checked out in advance. There are additional costs involved that are not mentioned in the price quoted. For instance, there is the state sales tax and the amount charged for the damage/loss waiver. If you still choose to lease, determine the lease's buyout clause and end of lease terms. Purchase costs around $100 and up. Lease may cost anywhere above $20.

Programming costs- Programming costs apply to merchants who change from one merchant account provider to another. The charge is a one time fee and may be less than or a little more than $100.

Discount Rate- The discount rate varies from 1.70% to 4%, per transaction. It is the fixed percentage amount that is deducted from the purchase cost.

Transaction Fees- a transaction fee is also deducted from the purchase cost. Varying from $0.20 to $0.50 per transaction, this fee is lower for retail businesses while slightly higher amounts are charged for MOTO and Internet businesses.

Monthly Minimum- This term indicates that the merchant account provider will charge you a monthly minimum of $25 (less or more), which shall include your discount and transaction fees. So if your transaction and discount rates equals or exceeds 25, no monthly minimum will be charged. However, if the fees collected for that month do not meet the $25 minimum, you will be charged the difference.

Gateway Access Charges- This charge usually approximates $25. Usually the Secure Payment Gateway being is a separate company from the Merchant Processor, charge extra access fees every month.

Statement fee- This fee is for the month end transaction statement that is sent to you like your other bills. This statement will list all the transactions that went through for that particular month. This would not cost more than $15 per month.

Address verification System charges- The AVS verification system works to compare and verify the address on the credit card with the one provided by the customer. VISA and MasterCard charge extra if no AVS is used. Most merchants now offer AVS with no extra charges. If there is any charge; it does not exceed $5. Currently, The AVS service works only with US credit card holders.

Chargeback fees- Anywhere from $5 to $25, a chargeback occurs when the cardholder disputes a charge that they found on their monthly credit card statement. A large number of chargebacks can pose problems in finding another merchant account for your business.

Reserve- This is a charge applied to a Non-US based merchant who is trying to obtain a merchant account or businesses that do a high volume of sales each month. The reserve amount varies and is determined by your businesses estimated sales receipts. The reserve fee is used to cover for any chargebacks on the merchants account.

Annual Fee- An annual fee may be charged n an yearly basis, for maintenance and system upgrades. This fee is usually not disclosed upfront. Its best to ask your service provider for details.

For more information , visit Credit Card Processing and Merchant Account Services.

Jack Chevalier