What is Merchant Account Fee?
Any fees imposed on the merchant by the card companies, the payment processor you choose to work with, and any extras or services you pick are referred to as merchant fees.
When combined, they can be divided into three groups:
• Set transaction fees (assessed by the card brands)
• Universal fees (Paid by every merchant)
• Situational fees (that vary based on specific conditions)
Merchant Services Providers: Ways to charge
The first thing you should know about merchant account fees is that they fall into one of three categories:
• Flat pricing
Some of the individual fees we’ll discuss won’t apply if you’re already on flat pricing, but they’re still important to know in case you decide to switch to interchange.
1. Tired Pricing:
Different card kinds and card member associations are grouped into “tiers” (usually three main prices) in a tiered program.
Therefore, you will be charged one of three prices for that transaction, depending on the card a customer uses.
This includes American Express vs. Mastercard, gift cards, reward cards, etc.
If you now offer tiered pricing, it could be worthwhile to research which card types are used the most frequently by your clients and, if there is an opportunity to do so, to transition to interchange pricing.
2. Flat Pricing:
The term “flat pricing” means precisely what it says. For every transaction, a single flat cost is charged. This includes a per transaction fee and typically ranges from 1.75 to 3 percent.
For instance, our flat pricing charge for each transaction is 1.99% plus $0.20. The industry standard for flat pricing is a percent plus a per-transaction fee.
3. Interchange Pricing:
The most efficient method of pricing is exchange pricing. Because each cardmember association levies a different processing cost according on the card and how it was used, interchange pricing only levies a charge based on the kind of card and adds a minor fee known as the discount rate on top of that.
Interchange Pricing: Should you consider or not-
That is based upon the stage your organization is in as well as the kinds of transactions you handle frequently.
Considering that some card kinds are more expensive than others, you might pay significantly less than you would on a flat fee depending on how much volume you have of a given card type.
Because these percentage discrepancies may pile up, we’ve even seen instances when switching to interchange allowed us to save firms up to 35% in processing fees.
As their business expands, the interchange (commonly referred to as interchange plus pricing) increasingly replaces flat and tiered pricing because of this potential difference. Although flat rates first seem handy, they might end up being very expensive.
Universal Merchant Account Fees: What? and Types!
Several merchant account costs will always show up on your bill, regardless of whether you are on flat, tiered, or interchange pricing.
It’s just the way these programs are established; you may use any merchant services provider and find them to be similar.
These fees are as follows:
1. Authorization Fee:
An authorization token is passed back and forth between the originating bank such as Chase, Citibank, etc; and the acquiring bank when a transaction is processed which is your business account.
The token verifies that the desired transaction will be permitted with the balance or credit and then either authorizes or rejects the request.
Note- For this, a small cost is levied per transaction, and you are still charged the fee even if the transaction is denied.
2. Transaction Fee:
Transaction fees are the term used by merchant service providers to denote the fee they charge for each transaction. Depending on your plan, it can additionally include the aforementioned authorization cost or the percentage that was applied.
3. Assessment Fee:
For a variety of costs, like fraud prevention and network operations, the cardmember associations levy assessment fees, which merchant service providers frequently pass along to their clients.
The charges levied per transaction are typically around 0.13% – 0.15%
Scheduled Fees: Overview and Types
You can encounter different “flat” merchant account fees as well. The amounts of these vary greatly.
1. Monthly or Annual Fee:
Some service providers only charge a flat proportion of your transactional revenue, while others bill you every month.
Just who you’re working with and how they conduct business will determine the same.
2. Monthly Minimum Fee:
If a processor bases their fees on a percentage of your revenue and you don’t meet a set threshold, you may be subject to additional fees from them.
3. Processing Commitment Fee:
You may be charged a processing commitment fee, which is comparable to the monthly minimum fee.
If the terms of your contract say that you need to be transacting a specific amount each month and you do not meet this requirement.
4. Statement Fee:
This fee is assessed to compensate for the expenses incurred in the printing and mailing of credit card statements.
Using online statements, which are normally free of charge, is an easy way to sidestep this tax and save money.
This price is becoming obsolete as more and more people get their statements online; nevertheless, you may still be charged for paper statements if you choose to get them.
5. Payment Gateway Fee:
Some merchant service providers operate their payment gateways, while others partner with other service providers.
Your MSP might charge you for this depending on the circumstances.
Merchant Account Fees (Situational): What and Types!
Sometimes, depending on the terms of your contract, you will be responsible for the payment of costs which are also known as incidental fees.
1. PIN Debit transaction fee:
You may be charged for a transaction if you approve of one that requires PIN verification.
2. Address verification system fee:
If you need to verify a user’s address for security purposes, then the average cost is $0.01 for each transaction.
3. Retrieval Request fee:
Customers who see a charge on their credit card statement that they are unable to identify have the option of reporting it to the bank that issued their card.
This causes the card issuer to begin an investigation into the purchase and to seek a copy of the receipt so that the transaction may be verified.
When the card-issuing bank gets involved, service providers typically add a minor fee to the total cost of fulfilling the customer’s request.
If a consumer does not recognize a transaction and reports it, you will be charged a fee since the issuing bank will have to collect receipts or other proof to verify the authenticity of the transaction. This cost is typically not very high.
RED FLAG Merchant Fees:
The following are some costs that should raise a red signal for you to keep a look out for.
• “Creative” processor fee:
There are times when processors decide to charge their own fees. For instance, just lately we came across a statement that included the phrase “interchange clearing fee.”
• Jacked-up assessment fee:
Check to see that you are being charged the same amount that the card association (Visa, Mastercard, etc.) actually does charge.
• Fluctuating discount rates:
These have the ability to move around. It’s possible that some businesses will exaggerate it until you challenge them about it. They will typically respond by claiming that their costs have increased, but that they were required to inform you.
It is common practice for businesses to state that they reserve the right to raise prices at any moment (we do so as well), but it is important to play it safe and read the fine print because some businesses hope that you won’t notice the increase.
Merchant Fee: The gist
In the end, the secret is to put in the effort necessary and to collaborate with reliable individuals. Unfortunately, this sector is rife with those who try to sneak in additional costs in order to make some additional cash by taking advantage of carelessness.
Hence, be careful and make sure to go through your receipts with utmost seriousness and carefulness.