Merchant Account Providers

Merchant Accounts & Fees - Part 1

Has your business grown to the point that you can no longer put off accepting credit card payments? Do you have an existing merchant account, but still have questions? Or maybe your company is establishing an online presence, making it essential to accept plastic. Regardless of the reason you must have a merchant account, which entails choosing a merchant account provider (MAP).

The most important thing you can do is to make it easy for potential customers to purchase your goods or services. One way is to allow them to use plastic.
If you are not currently accepting credit cards? Are you worried about the fees involved? Or is this unfamiliar territory a little too daunting? Whatever the reason, you need to take the plunge and accept credit cards to maximize sales.

First, paying by credit is the preferred method of today’s consumers. Do you have an on-line business? If the answer is “yes”, then accepting credit is even more critical as 88% of internet shoppers use credit for on-line purchases. 
Accepting plastic will far outweigh the fees involved in setting up a merchant account. There are hundreds from which to choose, so take the time to compare setup charges, equipment expenses, discount and transaction fees, etc.
You will also find that the charges and services provided will depend on the way you plan to accept plastic, your monthly sales, your business profile and the provider you select.

Accepting plastic by some estimates can increase your sales 20% - some even say as high as 400%! It will also give your business an aura of professionalism. Your small business must be current and in step with the times. If it appears outdated, you may relinquish any advantage you have over your competitors even if your goods or services are superior!

You are giving your customers a choice regarding their payment options when you accept credit cards. This will build confidence in your establishment and lead to repeat sales. It has also been shown that those who use credit cards make more frequent purchases than those who pay in cash. Even the amount in a given credit card transaction tends to be larger than if cash is the coin of currency as it is more difficult for people to part with cash than to sign a receipt or punch in their credit card information.
Accepting plastic also ensures your customer’s ability to pay. It takes only seconds to verify if funds are available and the money is deposited in your account.

Fees That Go Bump in the Night

When considering different merchant account providers, for in-person terminal use or on-line transactions, it is critical to know their language. So let's talk their language - don't worry, translation follows.

  • Application/Set Up Fee: Some merchant account providers charge a fee to defray its cost in underwriting applications and opening an account. However, many providers skip this fee altogether, so search around. Some providers claim to have no setup fees but then charge for the gateway, using semantics to their advantage.
  • Monthly Statement / Support / Service Fee: This is a monthly fee of approximately $10 to $15 charged to your account for these services. Your merchant account provider should provide you with a toll-free number for full back-up support and assistance when needed.
  • Annual Fee: The same as credit card accounts, merchant accounts also charge for running your account throughout the year.
  • Discount Rate: This term may be confusing as I’m not sure where the “discount” comes into play, but I digress. The discount rate is the merchant account fee that is charged on credit card transactions. It is important to know that on-site transactions (swiping cards) are less expensive than purchases made online or when credit card numbers are inputted manually. You can expect, on average, a 2.5% discount rate for online purchases.
  • Transaction Fee: This is the cost incurred when a transaction takes place and is usually linked with the discount rate. When checking out various merchant account providers, you may note an equation that looks something like this:2.5% + 30 cents per transaction. This indicates a discount rate of 2.5% and 30 cents charged for each transaction. One little note of fact is that a transaction fee is charged regardless if the transaction is approved or not. So with every swipe of push of the submit button, a fee of usually between 20-30 cents is charged depending on the type of sale.
  • Address Verification Service Transaction Fee (AVS): If your plans include on-line sales, it is required that you have an AVS system. This is a fraud preventative measure that checks the customer’s billing address with the address noted on the credit card. Fees average 5 to 10 cents per transaction.
  • Internet/Payment Gateway Fee: This fee applies if you will be using an Internet payment gateway instead of software or a terminal. This is usually a fixed fee of approximately $15-30 per month and billed through your merchant account or directly from the gateway provider. Some gateway providers charge an additional gateway transaction fee that normally runs 5 to 20 cents per transaction.
  • Software Fees: This is often billed for the use of payment gateways.
  • Voice Authorization Fee: There will probably be a point in time where your normal method of taking credit card payments is experiencing a glitch or the occasional hiccup. In such cases, it may be necessary to use the phone to complete a transaction. This fee normally ranges between 75 cents to $1.50. This fee will only apply on rare occasions (at least let’s hope so).
  • PIN Debit Transaction Fee: When debit cards are used for purchases and PIN numbers need to be entered manually, this fee will apply. This fee is normally a flat rate (no discount percentage added) and runs around 70 cents.
  • ACH, Daily Discount or Batch Fee: Once your business day has ended, your total sales are normally transferred into your bank account. There is a fee for this service that ranges between 5 to 50 cents. If no transactions were made on any given day, this fee should not be charged to your account.
  • Monthly Minimum Fee: This is a fee that is charged if you do not meet the monthly minimum amount stipulated in your contract. For example, if your monthly minimum is $25 and you only accrued $20 in fees for a given month, you are required to pay the difference of $5.
  • Surcharge / Partially or Mid Qualified / Non-Qualified Fees: This fee usually ranges anywhere between 0.5% to 2.5% and are dependent on the type of credit card used such as company credit cards, debit cards, rewards cards, government cards and those used internationally. Rewards cards, for example, typically downgrade to mid or non-qualified rates that can be much higher that the quoted qualified rate.  (Do you think Visa and MasterCard are the ones who truly pay for these rewards?)  Consequently, if you are quoted only one rate, ask for the other tiers. So, when speaking with merchant account providers, get clear answers regarding these fees before signing on the dotted line.
  • Reprogramming Fee: If you need to update a portion of your transaction set up, a fee will be applied to cover the cost of reprogramming both your hardware and software.
  • Chargeback / Retrieval Fee: In this day and age of credit card scams, fraudulent transactions and disputes made on sales, merchant account providers want to recoup on the time spent to resolve these issues. This fee usually runs around $25 and is only applied if a dispute arises. What you need to be aware of are additional chargeback/retrieval fees not brought to your attention before enlisting the services of a MAP.
  • Cancellation / Termination Fee: Since there are fees involved in setting up a merchant account such as administration costs, credit checks, server maintenance, etc., many merchant account providers have a fee in place should you decide to close or cancel your account. Depending on which provider you choose, this fee may be based on the length of time you have remaining on your minimum account period or your monthly average fee. Be leery of variable instead of fixed termination fees. Many providers waive this fee.  Before choosing a merchant account provider, know the specific details, as this could potentially cost you.
  • Hidden/Junk Fees: It is a common practice among some merchant account providers to not fully disclose all fees that will apply to your account. These can catch you off guard so it is critical to know what hidden fees to look out for. One prime example would be an excellent introductory rate. It seems almost too good to be true, but after several months you notice that your rate has doubled. Another example of the old “bait and switch” would be providers who offer outstanding rates on certain cards, but turn around and attach exorbitant fees to others. Other examples of hidden fees would be PIN debit transaction fees that are charged when debit cards are used for example. Begin by knowing what merchant account providers have up their "fee sleeves" so that you will not become their next unwitting victim.

These are just a few of the fees that may apply to your merchant account. None of these fees are necessarily without merit. However, the problem lies in not receiving full disclosure before signing a contract. There should be no surprises when you open your first billing statement from your merchant account provider.

In closing, I should state that there are hundreds and possibly thousands of merchant account providers who run their business with honor and integrity. If interested in a listing of the major U.S. merchant account providers, please see here

Sources: Andy Lax via StartupNation

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