Understanding Merchant Services Fees and Rates

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Author: Zabel1

In today’s increasingly plastic-based economy, more and more businesses are accepting credit cards as a valid form of payment for their goods and services. While the process involved in accepting credit cards used to be long and involved, today’s merchant account providers have significantly simplified and streamlined the process, and in many cases, a business can begin accepting credit cards within a few days to a week or two of having its application accepted by the merchant account provider.

But while the application and setup processes are relatively quick and simple, the rates and fees associated with many merchant provider accounts can be confusing. Both the types of fees and the amounts charged can vary widely from one merchant account provider to the next, and an understanding of the types of fees that may be charged can help you in choosing your account provider, and in anticipating the fees associated with your account.

The following list will help identify most of the major fees associated with the majority of merchant service accounts:

• Account setup fee: This is a one-time fee for processing your application. Some providers charge it upfront, while others incorporate it into their monthly or annual fee.

• Equipment fees: Many merchant providers offer an option to lease equipment needed for accepting credit cards, while others allow you to purchase it. While lease fees may seem more attractive upfront, generally purchasing equipment outright is a better option. For online and automated ordering systems, there may be a charge for software.

• Discount rates: This is a fixed percentage of each charge that is deducted from the amount charged in order to pay for processing. This amount varies based on the type of services you use (for example, if you have an online or “brick and mortar” store).

• Transaction fees: this fee is also charged with each transaction, and can also vary based on the type of service you use. Both discount fees and transaction fees are generally lowest for traditional retail establishments, and higher for other types of businesses, including online businesses.

• Gateway access: The gateway is the service that is used to authorize credit cards in real-time to help prevent fraud. Some merchant providers offer their own gateway, while others work in conjunction with an outside company. In some cases, you will be asked to find your own gateway provider; in those cases, it’s imperative you ensure the software of the gateway provider is compatible with the software used by the merchant account provider to avoid difficulties in processing transactions. Gateway charges are usually assessed on a monthly basis.

• Monthly minimum: Most banks establish a minimum processing fee, that in turn establishes the amount of discount and transaction fees that must be collected each month. When those fees fall short, the bank charges an additional fee to make up the difference.

• Statement fees: Each month, your bank will issue an account statement detailing all of your transactions. This fee covers charges incurred in preparing and issuing that statement.

• Chargeback fees: This fee is assessed when a customer disputes a charge associated with your business. Too many chargebacks can cause your account to be canceled.

• Closeout fees: Each day, the charges made to your business are totaled and the amount is transferred to your business account. This fee covers the cost of processing and transferring those amounts.

AVS fees: AVS stands for address verification system, and refers to the process used to ensure the address given for the order matches the address on the credit card that is being used. Many merchant account service providers include AVS at no extra charge, but some companies charge a small fee, either as an aggregate or on a per-transaction basis.

Annual fees: As the name implies, this fee is charged each year to keep the account open and active.

While this list includes the most common fees associated with most merchant accounts, there may be other fees included in accounts which are not listed here. To understand the fees and rates that may be associated with an account you’re considering, be sure to thoroughly read â€" and then re-read â€" the merchant account provider’s contract. Each contract should include a list of all fees, as well as explanations for when and why each fee is assessed. If there are fees you do not understand, be sure to ask your account provider to clearly explain those fees prior to signing the contract. Once you sign, you are legally bound to pay any all fees described in the contract.

Understanding the rates and fees associated with your account is one step toward ensuring that your business runs smoothly, and that every customer is satisfied with the transaction service your business provides.

Karan Zabel is a freelance writer who writes about Merchant Credit Card Processing Services