Merchant Fees - Account for All Credit Card Processing Costs

Let's discover what comprises a vendor's full rate structure by reviewing individual merchant fees.

- Start-up Cost - The terms set-up, application, or activation fee may be also used. This represents the total cost of opening a merchant account.

- Annual Cost - As the name suggests, this is the amount of money charged on a recurring, yearly basis. This merchant fee may also be known as a "club fee."

- Monthly Cost - This term should be self-explanatory as it represents the cost to keep a merchant account open per month. It should include customer and technical support.

- Gateway Fee - Applicable to Internet credit card processing, a gateway fee may not be included in the quoted monthly cost.

- Statement Fee - This may represent an additional monthly expense and covers the statement that business owners receive each month outlining his/her transaction history. As a result, it's always important to know the TOTAL monthly cost

- Monthly Minimum - A minimum amount of processing that the merchant is required to do to avoid an additional expense. For example, if the monthly minimum is $25 and the merchant has processed the equivalent of $20, the additional monthly fee will be $25 - $20 or $5.

- Discount Percentage - The percentage charged to the merchant for each sale. For example, if a merchant sells a $100 item, the discount percentage may be .025 (2.5%) on that $100 or $2.50. Generally, there are several discount percentage rates charged -- not just one. For instance, a retail merchant should, at the very least, receive qualified, mid-qualified, and non-qualified discount percentages. The discussion on these tiered rates may be found by clicking this link.

- Transaction Fee - A flat fee that is often charged in conjunction with the discount percentage. For instance, if the quoted rate is 2.5% + 25 cents, the 25 cents represents the transaction fee.

- Authorization Fee - Also deemed a transaction fee (see above) and is assessed any time the credit card processing networks communicate with the cardholding bank. This flat rate will be charged whether the business owner processes a sale, credits money back to a customer, or voids a transaction.

- Watts Fee - Another type of transacton fee that may be charged separately.

- AVS - Address Verification System flat fee that checks the customer's billing address with what's listed on his/her credit card. This fee is more applicable for Internet merchants than retail merchants.

- Batch - Typically done at the end of the business day, the batch fee encompasses the cost to settle transactions so that the merchant will receive funds from those transactions. It's important to batch out within 24 hours after a transaction has taken place or a higher discount percentage will be applicable.

- Voice authorization - It's possible for business folks to call a toll-free number to see if the customer's credit card is good to facilitate the transfer of funds. There is a separate flat charge for this service.

- Chargeback - This is a flat fee, applicable when a cardholder disputes a transaction with their card-issuing bank. The merchant must respond with proof of purchase and proof of successful delivery.

- Retrieval Request - Occurs when a cardholder's bank requests a reproduction of the sales draft used in a transaction in the event of a chargeback, calculation error, fraud inquiry, etc. This is a flat fee and only charged if/when applicable.

- Bank Change Fee - A dollar figure charge may be assessed if the business owner changes the bank account where the funds are to be deposited into.

- ACH Return Item Fee - A dollar figure charge may be assessed if the merchant does not have sufficient funds to cover processing-related costs, such as the monthly fee.

- PCI Compliance - As merchant account providers are incurring an expense to satisfy Visa/MasterCard requirments governing storing, processing and transmitting cardholder data, almost all are now defraying their cost by charging business owners. The PCI compliance expense may be a monthly or annual one.

- Visa/MC/Discover Pass-Through Rates - The cardholding associations charge acquiring banks/processors their own set of fees, such as a network access and brand usage fee and assessment fees. The processors then typically pass on these costs to their merchant client base. These pass-through rates are applicable to all providers.

Now that you're aware of all the possible merchant fees which may be assessed, you will be in a much better position to effectively evaluate credit card processing proposals.