How Merchant Account Fees Are Billed

As a new or existing business owner there may be some confusion about accepting credit cards. It's not a matter of if you should accept credit cards, because it has been proven it will be harder to survive in your business if you do not accept alternative payment methods other than cash. This is due to most consumers paying for the majority of their purchases today with either a credit card or a debit card. The question is who should be your provider and how much does it cost. Here is a simple rundown on how merchant accounts are billed.

As a business owner you are charged whenever you accept a credit card. The Associations of Visa and MasterCard set interchange rates for their respective cards. Your cost for accepting credit cards includes the interchange set by Visa and Mastercard as well as network and authorizations fees incurred when processing a transaction. Your Discount rate (the percentage of each transaction that you as a business owner pay to accept a credit card)is based on your type of business, how your transactions are entered (processed) as well as the average amount of a sale that your business runs.

The rates quoted for merchant accounts are charged on a per transaction basis. For instance if you are quoted 2.00% discount rate with a $.25 transaction fee and you process a transaction for $100.00 here is how you figure out what it costs.

The equation would be:
(dollar amount x discount rate) + transaction fee = cost to accept a credit card transaction
($100.00 x 2.00%) + $.25 = $2.25

That's it. As we can see if that is the rate you are quoted, accepting a $100.00 transaction will cost your business $2.25 to accept.Additional Fees:

In Merchant services, you should know the fee schedule your account is on. For example, there is usually not one discount rate that fits all, cards that is. Visa and MasterCard have many different types of cards, i.e business cards, purchasing cards, rewards cards etc. The fees assessed when your business accepts these cards will usually be different from the discount rate quoted. Be clear on your fee schedule and the discount rate these different card types will cost your business. Many times the costs of accepting rewards or purchasing cards will be very high if you don't pay attention to the cost. Don't only look at the initial discount rate, consider all of the rates charged.

As a business owner you should always ask what these additional charges are if any to understand the full cost of your merchant account. If you are not diligent the fee to accept a business credit card may be upwards of 4%.Monthly recurring Charges

The majority of merchant accounts will have recurring monthly charges. These charges handle the monthly maintenance, statement rendering of your account, etc. These fees go by many different names i.e statement fees, monthly maintenance fee, customer service fee, etc. Regardless of what the fee is called, you should know what the total monthly recurring costs are.Monthly Minimum

A Monthly minimum is a minimum fee that will be assessed to your merchant account on a monthly basis. If the fees assessed on your processing volume for the month is less than your monthly minimum, you the business owner is charged the difference. For instance, lets say you are quoted 2.00% as a discount rate and $.25 transaction fee and you process 1 transaction for $800 in credit cards you should be charged apx. $16.25. However if you have a monthly minimum of $25.00, you will be charged $25.00 regardless of your actual fees. The merchant account company will charge you the additional $8.75 so you can satisfy your monthly minimum. For a business that has a monthly minimum that does not process many transactions, you may be wasting money because you are not getting anything for what you are paying.Funding of Transactions

Once you process all of your transactions for the day, you will batch your credit card terminal or virtual terminal. All that means is you are sending all of the transactions you have run for the day for settlement. Once the batch is received your funds are scheduled for deposit into you bank account.That process takes about 48-72 hours.Batch FeesSome merchant account processors will charge you a batch fee. Every time you batch, you will be charged a fee. I recommend you avoid this fee by asking to have it removed. It's minimal but every penny counts.

Annual Fees
Some merchant account processors charge an annual fee of some kind. It may be broken up monthly or charged one time during the year.

PCI Compliance fee

Some merchant account processors charge a pci compliance fee of some kind. PCI compliance are rules governing protecting card holder data when accepting credit cards for businesses and merchant account processors. In recent years with breaches of consumer card numbers, The Credit Card Industry came up with rules to minimize card holder number breaches. Some merchant processors are charged to become pci compliant, and they also have to insure that their customers are also pci compliant. This fee is then passed to the business owner. It's not a form of insurance so I have yet to understand what this fee actually accomplishes.