The payment processing world has its own language and unless you have worked in the payments industry, it can be a little difficult to understand what all the rates and fees mean and how they will affect your business.
Common merchant account fees
Here are some of the more common fees you might see in a merchant agreement:
- Address verification service fee – a fee charged for using the address verification service (AVS), which compares the billing address supplied at the time of sale with the billing address on file with the card issuing bank. AVS is an important measure for combating fraud, especially in e-commerce situations, so unless you’re in a low-risk business, this fee might actually be saving you money.
- Batch fee – a fee charged for submitting your batch of transactions for settlement. Typically you will send your batch of transactions once per day for settlement–a lot of times it happens automatically, without your involvement. The fee may be different for credit card vs. debit card batches.
- Chargeback - a chargeback happens when a customer disputes one of your transactions. The chargeback fee is significant, and it can affect your merchant account, so you’ll want to take steps to keep chargebacks to a minimum.
- Discount Rate – a fee charged as a percentage of each transaction’s dollar amount. Discount rates can vary depending on the type of business and how you process your transactions. There are different “œqualification levels” for transactions:
- Qualified transactions (or “qual” for short) are the lowest cost transactions and usually apply to retail (face to face) transactions where the credit card is swiped through a terminal or card-swipe device. Discount rates for qualified transactions are lower because the risk of fraud is lower.
- Whenever you type in the card number”“or if you are doing business online, you will typically pay a higher discount rate, referred to as a mid-qualified or non-qualified (a.k.a., “non-qual”) rate. The discount rate is higher in this situation because the processor and the card associations are taking on a higher level of risk.
- Monthly Minimum – what you will be charged regardless of the level of sales each month. If all your total fees for the month are less than the monthly minimum, you’ll be charged the monthly minimum.
- Statement fee: - the charge for getting your monthly merchant account statements.
- Setup fee – a fee charged for setting up your account. This is usually a one-time fee charged when you first begin processing with a new payment solutions provider. There may sometimes be multiple setup fees.
- Transaction fee – a flat rate you pay for each transaction you process. The more transactions you process, the more transaction fees you will pay.
- Voice authorization fee – a fee charged whenever you go to process a payment and the response is “call voice center”, so you have to call in to get an authorization code to complete the transaction.
There are more fees that you might see on your merchant agreement. If you want to research this further, we’ve provided some more free merchant account resources below.
Other resources on merchant account fees
- How do Merchant Account Fees and Gateway Rates work? from Ourshop.org. A high level overview.
- What does all this mean? – Merchant Account Fees from the Merchant Account Blog. A thorough look at ALL the fees that may apply.
- Merchant Accounts 101 from Merchant Account Services. A very detailed 13-page tutorial that discusses everything involved in merchant accounts.
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