Comparing merchant card processing quotes can be quite challenging as there are many fees and rates to consider. The proverbial apples-to-apples comparison becomes even more daunting when so many companies omit important rates when providing their fee structure. The following lists the credit card processing fees to consider when shopping for an account:
Start-up cost - The initial cost to acquire merchant card processing. Some processors use the terminology of set-up, application, or activation cost.
Annual cost - As the name suggests, this fee is assessed per year, typically one month after an applicant signs up, and then on the one-year anniversary date.
Monthly cost - This is the fee that will be deducted from a merchant's account per month. It's important to know the total monthly cost, and see if it encompasses any fees related to customer and/or technical support.
Statement fee - This is often charged separately and is a monthly expense, assessed to merchants for the monthly statements that they receive in the mail from merchant card processors.
Gateway fee - Merchants who launch Internet or e-commerce sites should know their gateway fee. (The gateway is the mechanism that is integrated with the website so that customers can go online and input their own payment information.)
Monthly minimum - Many merchant card processors charge a monthly minimum which necessitates that the merchant achieve a certain processing volume or pay extra per month. For example, consider a company that has a $25 monthly minimum. If a merchant had $1,000 in processing and paid a 2.2% rate, he/she would then be considered to have obtained the following level of processing:
$1,000 x .022 = $22 . The merchant did not reach the $25 threshold and thus owes an extra $25 - $22 or $3.
Discount percentage - This is the percentage that a merchant pays per transaction for merchant card processing. For example, if the merchant is assessed a 2.2% rate, the 2.2% represents the discount percentage. There are several discount percentage tiers, particularly for retail or swiped accounts, which can include a quailified, mid-qualified, and non-qualified discount percentage. Some processors only disclose the qualified discount percentage, but all tiers should be delineated. Please note that keyed in transactions are always assessed at a higher discount percentage than swiped transactions, and certain credit cards, such as rewards cards, cost more than their non-rewards counterparts. International, government, and corporate cards cost more to process as well.
Transaction fee - This is often added to the discount percentage for merchant card processing. For instance, if a merchant is assessed 2.2% + .25 per transaction, the .25 represents the transaction fee. It is a fixed amount and does not change regardless of the amount of the transaction.
Authorization fee - This will be assessed whether the customer processes a sale (same as transaction fee, above), provides a credit to the customer, or voids a transaction. Indeed, this fee is tacked on any time the credit card processing networks communicate with the customer's cardholding bank.
Watts fee - Another type of transaction fee may be billed separately.
AVS - This is the acronym, Address Verification System, and is a flat fee that may also be assessed separately. Here, the customer's billing address is compared to the address listed on the credit card.
Batch - This is the cost to settle the transactions at the end of the business day. Batching activates the process to move funds from customer to merchant, and should not be done later than 24 hours after the transactions have occurred; otherwise, the merchant will be charged a higher discount percentage.
Voice authorization - It's possible to call a toll-free number to faciliate the transfer of funds. This is the flat-fee cost to use this service.
Chargeback - This is the fee that is assessed in the scenario where the customer calls his/her card-issuing bank to dispute a charge. The merchant can win a chargeback but still will be out this "investigation fee." It's always important that the merchant have proof of purchase and proof of successful delivery, if possible.
Retrieval recovery - This may be associated with a chargeback, and an additional merchant expense when he/she has to provide a copy of the sales draft.
Bank change fee - If funds have to be re-routed to a different bank account, this is the fee that is charged.
ACH return item fee - It's important that merchants always have sufficient funds in the account for processing-related expenses. If a fee is charged and a merchant does not have ample funds to cover it, this fee will be tacked on.
PCI compliance fee - This is either an annual or monthly cost, dependent on the processor. Merchant account providers are incurring a cost to ensure that their backend networks are secure, complying with Visa/MC regulations for storing, processing, and transmitting cardholder data. Providers, in turn, then charge merchants to defray such a cost.
Visa/MasterCard/Discover pass-through rates - The cardholding associations assess their own surcharges to acquiring banks and processors. These entities then pass-through such discount percentages and transaction fees.
The aforementioned list, outlining the fees and rates associated with merchant card processing, should help you better decide between competing offers. Of course, we hope that our full-disclosure of all relevant fees, will win us our share of accounts -- particularly as our fee structure is also quite competitive.
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