Merchant account fees.

This will help you better understand merchant account fees:


Standard Fees:

1. One time fees
2. Recurring monthly fees
3. Transaction related fees
* per transaction (set fee such as 30 cents)
* per order totals (percentage fee such as 2.35%)

These same items apply to the payment gateway fee structure:

1. One time fees
2. Recurring monthly fees
3. Transaction fees


See, merchant account fee structures look more complicated than they really are.

As an Internet Businesss, I am having some problems with Merchant Account fees that maybe someone can clear up. I understand the per transaction fee and percentage of order fee - but I am getting charged multiple fees - let me explain:

For every order I am being the charged the $0.30 fee when the order is placed (Pre-auth). then I am charged another $0.30 fee when the order is shipped and I capture the funds (capture). Then daily I get a $0.30 fee when the nightly batch process occurs - this is one fee per day so no big deal.

Do all Internet processors charge, and all Internet merchants pay to Pre-Auth and then to capture? Quickbooks is my Merchant Processor via GoDaddy and neither one seems to have a clue about anything.

Any recommendations on A great hosting provider with great shopping cart and Merchant processor? thanks for any help.

BTW, I worked for VISA for many years and understand the card issuing side in excruciating detail, but this is my first exposure to being a merchant.

I bought this book that explains Interchange and to some extent, how to figure out what processors are really making. I used it to compare providers. I can't find it, but I think it's called Understanding Interchange -- try a search engine. Get this, it costs $180! Now that's expensive. In the end, it probably saved me more than that . . .

[Jeanie]

Wow, thanks for the info FredLJack..hopefully we will hear success stories..

~Jeanie

fred jack he is asking question for saving his money not for spending $180 on a book.

Takes money to make money I guess. I am saving over $2,000 a year on interchange fees. This was done by having my merchant classification code corrected -- my processor had it wrong. I also switched to cost plus reporting. I started settling within 3 days on most of my store's sales, and I fixed an AVS issue. My processor was not very helpful until I pointed out some of the stuff in this book. The cs rep was embarrased. You can buy it on Amazon, just do a search on "understanding interchange". Good business advice: don't be afraid to spend money.

Breifly..

When a credit card is swiped or keyed in by either you or a customer, the transaction is first authorized. At the end of the day (when you do your report) the batch is "settled". Hence the authorization and settlement fee. Ontop of this is typically a "batch fee"

Depending on who you use for your processor, your credit, and your type of business, fee structures will be different. It's like buying a house. Better credit and lower risk means better rates and fees.

There are still some grandfather plans out there where people are getting charged $.30 per auth and another $.30 for settlements, however this is unusually high for a lower risk business.

These are the typical fees you will see associated with a merchant account. Rates will vary from one provider to the other.

Application/Setup: $0 - $100+ (one time fee)

Most providers have an application fee. Some charge it right out at the beginning, while others add it into the solution purchase/lease costs. Some providers do not have an application fee at all.

Hardware/Software: $99 and up or Lease: $20/month and up

One important note worth mentioning here, though leases are sometimes beneficial to you because they keep you from paying up front for a terminal, it's usually much 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 2.30% for online and 1.79% for retail, 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: $0 - $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 is a separate company from the merchant processor, they charge extra fees. For every month that you are on their system, you usually pay an access fee.
The usual fee to pay for gateway access is around $10.

Statement: $0 - $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. Many providers do charge this daily closeout 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 do have an AVS charge, even if it's bundled with your transaction fee. 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 - $35 per instance

A chargeback occurs when the card holder 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. A reserve should be avoided if all possible.

Annual Fee: $0 to $100 per year

Some credit card processors will charge this fee just as additional way to pay for maintenance and system upgrades. This fee usually isn't disclosed upfront. Ask your merchant account sales representative for information.

"Authorization" fees are junk fees that increase the profit margin of the processor. So if they gave you a super low rate, they may have hidden some language allowing them to charge an inscrutable quantity of authorization fees.

Typically, a processor will mark-up the transaction fee a certain amount and that fee is paid for every transaction plus a few for refunds, authorizations, etc. For the typical swipe or internet transaction there should be only one fee. So multiple fees on the same transaction suggests that a processor has built in some way of collecting additional fees into your pricing. This is a very sketchy way of pricing, but unfortunately many processors do this.

Which is one more reason to go with a reputable company that clearly states a lack of hidden fees or complex surcharges. Only a few processors will offer Costplus pricing to anybody. Send me a message and I will tell you more.