Merchant Account Fees
& Rates
Most common fees and rates
One of the more confusing parts about setting up a merchant account is
deciphering all the fees and charges. Below all the fees are defined.
Be sure to ask your provider about all of these fees and what they will
cost you. Often a merchant account that seems to be low cost can wind
up being very expensive. You may separate the fees into two categories:
set up fees and ongoing fees. Also be warned about hidden fees that were
not disclosed beforehand.
Set Up Fees
Ongoing Fees
Hidden fees
There are a variety of other charges, often not spelled out. Make sure
that you read every word of the contract and that you have some evidence
of the Merchant Account Provider's integrity and good standing before
you sign up.
Application Fee
An application fee is charged by most Merchant Account Providers to cover
processing costs including credit check. In most cases, it is not be refundable
if your application is denied. If you're considering signing up with a
Merchant Account Provider that doesn't charge an application fee, make
sure that you won't have to pay higher fees elsewhere to compensate.
Average cost: $50 to $150.
Setup Fee
A setup fee is usually charged for hardware and/or software installation.
Merchant Account Providers that don't charge setup fees sometimes lease
software and hardware instead of selling it, in which case there will
be monthly lease payments later.
Average cost: No charge to $300.
Hardware
Point-of-Sale terminals, which allow a customer to slide their credit
card through a terminal to verify a transaction in real-time, can cost
up to $1,500 for high-end models. Some vendors will allow you to lease
the equipment for a monthly fee. Leasing often can be significantly more
expensive.
If you are an internet merchant, most Merchant Account Providers don't
require you to buy or lease hardware.
Average cost: $500 to $1,500 to purchase, and $15 to $50 per month to
lease.
Software
Software allows you to send credit card transactions to a merchant account
provider across a dedicated or protected line.
If you have signed up with a Online Merchant Account Provider, it will
provide you with the code to place a link on your site to its secure server.
This link will allow the credit card transaction to take place, usually
in real time. You'll also need shopping cart software, which provides
the interface that allows customers to enter their credit card information.
Most vendors sell both as a package.
Average cost: $400 to $800.
Rolling Reserve/Security Deposit
Security deposits and rolling reserves may be required for start-up businesses,
high-risk industries, or merchants with bad credit. A deposit is a lump
sum, usually the first month's receipts; a rolling reserve is a percentage
of all receipts taken in during several months. After a period during
which a merchant builds a strong reputation and shows a profit, both are
returned to the merchant.
Average cost: First month's receipts or 30 percent of your monthly business
volume.
Discount Rate
The discount rate is the percentage of the amount of the sale charged
on each transaction. Rates are lower the higher the monthly sales volume.
This is the principal charge you will incur and the principal way the
Merchant Account Provider generates revenue. Visa and MasterCard influence
this rate. They currently charge Merchant Account Providers 1.8 percent
and 1.85 percent, respectively, for each online transaction.
Average cost: 2.5 percent to 3 percent. The industry standard is 2.65
percent.
Per Transaction Fee
The per transaction fee is the fee charged by the Merchant Account Provider
to process each transaction. Low discount rates are often coupled with
high transaction fees, and vice versa. If you sell high-cost products,
it's in your best interest to look for relatively low discount rates.
If you sell low-cost products, look for low transaction fees.
Average cost: 20 to 60 cents per transaction.
Daily Batch Fee
Batch fees are charged for closing out your account each day. Merchants
usually send one batch of transactions daily. You may be charged a late
batch fee if you do not close out within a certain time frame, usually
24 hours.
Average batch fee: 10 to 40 cents a day.
Authorization/Verification Fee
For all card non-present transactions (i.e. mail, Internet and phone),
an address verification charge may be added to the Per Transaction Fee.
This can reduce the number of chargebacks. You'll pay this fee with each
transaction.
Average cost: 5 to 10 cents per transaction.
Voice Authorization
If your physical or virtual terminal goes down, you'll need to dial a
voice authorization number to process your orders. Some companies charge
a fee for this service.
Average cost: $1 per order.
Monthly Statement Fee
The monthly statement/customer service fee is charged for issuing monthly
credit card transaction statements and servicing the account.
Average cost: $10 per month.
Monthly Minimum Fee
A monthly minimum fee is charged if the amount paid in discount rate
fees does not meet a monthly minimum set by the Merchant Account Provider.
You will have to process a certain number of orders per month and charge
a certain amount per order to avoid paying this charge.
Average cost: $20 to $35 per month.
Monthly Gateway Fee
The monthly gateway fee is the cost for using a third-party credit card
processing service. If your Merchant Account Provider uses a third-party
service, it will probably charge you a monthly fee to help offset the
cost of using a third-party service.
Average cost: $15 per month.
Chargeback Fee
Chargebacks refer to the process of issuing a customer credit for returned
items, misorders, fraud, etc.
Average cost: $25
Fraud Protection
Some Merchant Account Providers offer merchants fraud screening software
that automatically stops questionable transactions before they go through.
Average cost: 10 cents per transaction. There might also be a $100 to
$150 setup charge.
Annual Renewal
Some Merchant Account Providers charge a fee for annually renewing a
merchant's account. It's worth shopping around, though, as many do not.
Average cost: $50 to $100 per year.
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