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4. What Fees are Associated With a Merchant Account?
The fees that you will pay for a merchant account vary depending upon many of
factors discussed earlier, such as perceived level of risk, estimated dollar volume, aggressiveness of acquiring bank, etc. In general, however, following rates will apply:
Setup Fee: sometimes called an “application fee”, this one time fee varies widely, from $0 to $500 depending upon acquiring bank.
Discount Rate: discount rate is percentage of total sale that you pay to acquiring bank. These rates are determined using a number of factors, including average order dollar amount, estimated total monthly dollar volume, perceived business risk, etc. Discount rates range from approximately 2% to 4%. Small variations in discount rate can have a large impact on your total cost if you are processing significant dollar volume.
Transaction Fee: some acquiring banks levy a transaction fee in addition to discount rate. Of those that do levy a fee, they typically range from $.10-$.30 per transaction. Note that banks that waive transaction fee sometimes “build it in” to discount rate to make their fees appear more competitive. Comparing total cost of different providers will allow you to make informed decisions by comparing “apples to apples”.
Statement Fee: this fee covers cost of producing your monthly statement. Typical fees are $10 or under, although some banks will not charge a statement fee at all.
Monthly Minimum: some acquiring banks will charge you a minimum fee (e.g. $25) if your discount rate plus transaction fees do not exceed some minimum amount.
Chargeback Fee: if a customer successfully repudiates a charge from you, bank will charge you a “charge-back” fee. This rate varies from $10 to $25 for each chargeback. Note that too many charge-backs will likely result in loss of your merchant account status, so be sure to take advantage of available fraud control technology and apply sound business judgment in order to reduce incidences of charge-backs.
Reserve Funds: if acquiring bank perceives that your level of risk exceeds their standard guidelines but is not high enough to result in a rejected application, you may be required to set up a reserve account with bank. This typically consists of a percentage of your sales volume (e.g. 10% of your estimated first six month’s sales). This provides a fund that merchant account provider can access should you exit business.
Because of number of fees involved, we recommend that you prepare a spreadsheet to calculate total cost of various merchant account alternatives that you are exploring. This will help you make your final decision. EasyPay123 has a simple online fee calculator available on our website that helps simplify process of comparing different merchant account providers’ fees.
Merchant Account Tips
1. Determine what software you are going to use to process credit card payments before you get a merchant account. This will determine whether you will need a card present or card not present type of merchant account. 2. Be sure to shop around in order to get best value from your merchant account provider. Remember that price should only be one factor in your selection process. Service, reputation and policies should be evaluated as well. 3. Ensure that your merchant account provider connects to a processor that your payment gateway also connects to. 4. Minimize your charge-backs by employing latest fraud detection technology and exercising good business judgment before shipping products. 5. Be sure to calculate total costs when comparing merchant account providers. Often fees are “hidden” in discount rate to make it appear that, for example, transaction fees or setup fees are being waived. Understand various components that will determine your cost and take a few minutes to do necessary calculations. It could save you a lot of money down road. To speed up your comparison process, use EasyPay123’s merchant account fee calculation located on our site.
Summary
Obtaining a merchant account is a necessary step in providing your merchants convenience of paying by credit card. If you haven’t gone through process before, it can be somewhat confusing, since many players and fees are involved. Shop around, understand all of related fees and policies associated with merchant account, and ensure that you’re dealing with a reputable company. Your business deserves nothing less. If you have any questions about process, please call us at EasyPay123 toll-free at 866-438-8767.
About EasyPay123
EasyPay123 is a leading supplier of payment processing solutions to businesses across North America. Offering world-class solutions at affordable prices, EasyPay123 helps merchants simplify process of acquiring, launching and using payment applications to improve way they do business. Visit us at www.EasyPay123.com.
For a description of some of e-commerce terms used in this article, please visit our online glossary at www.EasyPay123.com.
If you found this article helpful, you may wish to request one or more of other articles in EasyPay123 series by visiting our website. Articles in this series include:
Understanding E-commerce Transactions How Transactions are Processed Getting Merchant Accounts How to Design and Build Payment Applications How to Choose a Payment Gateway How to Pick a Shopping Cart Preventing Online Fraud Gaining Visibility for Your Website Understanding Wireless Payments
© 2003 EasyPay123 All Rights Reserved. This article may not be copied, reprinted, published, translated, hosted, or otherwise distributed by any means without explicit written permission from EasyPay123.
Robert Levings is President of EasyPay123, a leading North American provider of online payment solutions.
