Many new business owners are confused about rates and fees
for merchant accounts, and rightfully so. In order to get many
of your questions answered you have to spend hours searching
the Internet. The purpose of this article is to help demystify some
of the confusing questions you may have about credit card
rates and fees.
When it comes to choosing which Merchant Account Provider
you wish to deal with (there are many of them out there) the
one factor that influences most people is the cost. Accepting
credit cards can be expensive, so make sure when you're
searching around you compare different providers to get the
best deal. Read all the fine print also, as you may find some
"hidden" charges not mentioned elsewhere like cancellation
fees for example.
Here's an outline of the approximate rates and fees
associated with maintaining a merchant account:
Application/Setup: $0 - $100+ (one time fee)
All providers have an application fee. Some charge it right out
at the beginning, while others add it into the solution
purchase/lease costs.
Hardware/Software: Purchase: $99 and up Lease: $20/month
and up
From Webmaster Weekly
One important note worth mentioning here, stay away from
leases if all possible. It's always better to purchase from the
beginning than pay a lease for the next 12, 24, 36 or 48
months. Why? With a lease you'll end up paying sometimes 3
times or more then if you would of just purchased the solution
outright from the beginning. While a $29.95 monthly lease for
48 months sounds good in reality it isn't. Leases are very hard
to get out of once started. If your business goes under before
the 48 months are up, you still have to pay on the
hardware/software costs until the last penny has been
received by the leasing company. Also, the lease fee you see
does not include your state sales tax or the amount charged
for the damage/loss waiver. If you do go for the lease, always
determine the lease's buyout clause, end of lease terms, and
especially beware of clauses that allow the lease company to
continue charging you even after the 48 months have passed
(they say that you should contact them in writing one month
prior to the end of the lease, or you can just let them keep
charging you).
Programming: $0 - $100+ (one time fee)
This usually only applies to retail merchants who have
changed from one provider to another. The programming
process isn't difficult but watch out for the cost, some
providers may nickel and dime you on programming fees. Why
do they charge this fee if you use your own equipment? It's
used to somewhat make up for the loss of not selling or
leasing you their equipment.
Discount Rate: 1.49% - 4% per transaction
This is the fixed percentage amount that is deducted from the
purchase cost. The lower discount rates are for retail
establishments while the higher are for Mail Order/Telephone
Order (MOTO) and Internet-based businesses. Why the lower
cost for retail? The instances of credit card fraud are much
lower so banks are able to charge lesser percentages for these
types of businesses. A typical discount rate for US business
is right around 2.50%, perhaps a little higher or a little lower.
Non-US businesses will pay a higher discount rates closer to
the 3% to 4% range.
Don't let a few tenths of a percentage point be the deciding
factor between two providers. For example, if Provider "A"
charges 2.29% and Provider "B" charges 2.49% you'll only
save $0.20 for every $100 processed through your merchant
account.
Transaction: $0.20 - $0.50 per transaction
In addition to the discount rate a transaction fee is also
deducted from the purchase cost. Also, just as with discount
rates, transaction fees are lower for retail businesses while
slightly higher amounts are charged for MOTO and Internet
establishments. Address Verification (AVS) may either cost an
additional fee, or may be included in the base transaction fee.
The typical transaction fee for US businesses is right around
$0.30 while the higher end of this fee is sometimes the case
for Non-US businesses.
Monthly Minimum: $20 - $25 per month
The fee is based on your transaction and discount rate fees
from your credit card sales each month. For instance, say your
bank charged $25 as a monthly minimum, the transaction and
discount rate fees collected by the bank must equal or go over
$25 each month. If this is the case no monthly minimum will
be charged. However, if the fees collected for that month do
not meet the $25 minimum, you will then be charged the
difference. Not all processors have a monthly minimum fee,
however most do.
Gateway Access: $0 - $25+ per month
Since in most cases, the Secure Payment Gateway provider
(e.g. Authorize Net, VeriSign, etc.) is a separate company
from the Merchant Processor, they charge extra fees. For every
month that you are on their system, you pay an access fee.
The usual fee to pay for gateway access is around $10.
Statement: $10 - $15 per month
The statement fee is charged because at the end of each
month you will receive a statement from your processing bank
that will list all the transactions that went through for that
particular month. It's very much like your credit card or
telephone bills.
Daily Close-Out: $0 - $0.15 each day
Associated with software and terminal processing solutions
where at the end of every business day you close-out all your
transactions. Most providers no longer charge this fee.
Address Verification System (AVS): $0 - $0.05 per transaction
The AVS service checks to see that the billing address given
by the customer matches the credit card. If you opt not to use
AVS, VISA and MasterCard will not support your transactions
and will charge you an additional 0.17% to 1.25% on those
sales. Most merchant accounts come with AVS at no extra
charge. If there is a charge, it is combined in with the per
transaction fee in most cases. The AVS service works only
with US credit card holders. Currently, there is no AVS service
in place for non-US credit card holders.
Chargeback: $5 - $25 per instance
A chargeback occurs when the cardholder disputes a charge
that they found on their monthly credit card statement. A
large number of chargebacks can cause your merchant account
to be dropped totally and leave you in a bind when trying to
get another merchant account for your business. If this is the
case you may not be able to get another merchant account for
several years. As a merchant it is important that you take the
necessary steps to reduce and potentially eliminate the
instances of chargebacks.
Reserve: Varies, ask the provider for details
Some providers will require you to have a reserve account
where the amount is determined by your businesses
estimated sales receipts. Usually a reserve is almost always
charged to a Non-US based merchant who is trying to obtain a
merchant account. Also, businesses that do a high volume of
sales each month may be charged a reserve fee. Otherwise,
there usually isn't a charge.
In most cases, the reserve fee is used to cover for any
chargebacks on the merchants account.
For the most part the rates and fees listed above are what
most providers fall in between. You may find a few companies
that will charge lower in one fee, but beware they may make
up the loss elsewhere in another fee.
So there you have it. Hopefully I've been able to explain most
of the rates and fees you will experience when operating your
own merchant account. The ticket to not being surprised by
those "hidden" fees is to always ask questions up front. If
somewhere in the conversation with a representative you have
a funny feeling that something isn't right, go with your
instincts and look for another merchant account provider. It
just may save you some unwanted surprises in the end when
your merchant account is issued and you get your first
monthly statement in the mail.
From Webmaster Weekly
Sincerely, 
