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All Those Credit Card
Processing Fees!

The many credit card processing fees you can confront when applying for a merchant account is the subject of this part of The Merchant Account Advisor's Nine Minute Tutorial.

Perhaps the easiest way of addressing the issue is to first set out for you the credit card processing fees you'll come across no matter what type of merchant account you are looking for

We'll then address individually the specific fees you can expect to see for real-time online processing, manual online processing and retail processing, respectively.

Information about Credit Card Processing fees

Universal Fees:

Certain credit card processing fees can be expected with all modes of merchant accounts: 

1. Discount Rate Fee. The discount rate is a percentage charged on the dollar amount of each sale you process. The actual rate varies according to what type of merchant account processing you select. Presently, real-time and manual online processing generally have rates in the 2.15% to 2.45% range, while retail processing rates are in the 1.60% to 1.80% range. 

The higher rates levied for online processing are a result of the fact that with these processes, the merchant does not have a physical credit card in front of him to swipe, so the chances of fraud are higher. One can expect higher rates as well, if the risk associated with one's business is assessed as higher than normal....for example, with certain industries such as gaming, travel, etc; if your business is international or offshore; or if your credit history is tainted. 

2. Transaction Fee. These are credit card processing fees charged for each individual transaction you perform, including each sale processed, each chargeback, each batching of sales submitted, etc. Typically, transaction fees run between 20 cents to 35 cents per transaction processed. 

3. Monthly Statement Fee. This is a fee charged monthly by the merchant account bank, usually in the $10 to $15 range, but sometimes running as high as $30. 

4. Monthly Minimum Fee. Monthly minimum credit card processing fees are imposed only if the total Discount Rate Fees you pay in a particular month don't reach your monthly minimum. These fees are usually $15 to $30 per month. 

Suppose, for example, the monthly minimum is $25.00, the Discount Rate is 2.30%, and that you process only $800.00 of sales in a month. You would have paid only $18.40 ($800 times 2.30%), so you would be assessed another $6.60, to bring you up to your $25 monthly minimum. 

In other words, the monthly minimum is the least amount you will pay in a month, no matter what your sales are. Of course, once you have a decent amount of sales each month (in our example, $1,087), the monthly minimum will have been met and you won't be charged a monthly minimum fee. 

5. Application Fee. Some merchant account providers will charge a one-time fee ($100 to $500, or more) for merely allowing you to apply for a merchant account. Due to high competition in today's market, the majority of companies now either do not charge an application fee, or waive it. If you do want to apply to a company that charges an application fee, you should ask them to confirm in writing that they will refund your fee if you are not approved for a merchant account. 

Also, keep one thing in mind: banks and ISO's are in business to make money. If they don't charge an application fee, they may be making up for the lost revenue by charging you higher credit card processing fees elsewhere. So it is always best to look at the whole package of credit card processing fees being charged to assess which merchant account provider makes the most economic sense for your business. 

6. Chargeback Fees: Another credit card processing fee you will come across sooner or later is the chargeback fee. These are fees (usually $10 to $35) you, the merchant, pay when one of your customers successfully disputes a charge on their credit card and has the transaction reversed. These charges can quickly add up if you sell a defective product or service, or if the shipping process you utilize to deliver products is faulty. You may even be assessed a retrieval fee if the customer requests the delivery of pertinent documentation during the dispute. And, a high number of chargebacks can place your merchant account in jeopardy - and once lost, getting a second chance at obtaining a new merchant account can take years. 

7. Reserve or Holdback Fees: Some merchant account providers insist upon holding back from you a percentage of your sales each month, as security against future chargebacks, especially if you are in a high risk business. If you operate for several months without a problem, this requirement may sometimes be dropped and the money that was held back released to you. 

8. Address Verification Fee: In order to reduce chargebacks and fraud, the address verification system will allow you to ensure that the billing information the customer submitted is accurate. While usually free, some providers do charge a small per transaction fee for this service. 

9. Voice Authorization Fee: There may be occasions where your online system or physical terminal goes down. A few companies will charge you credit card processing fees to allow you, in such circumstances, to telephone a voice authorization facility to process your orders during the down time.

Real-Time Credit Card Processing Fees:

real-time credit card processing fees

Internet merchant accounts have their own additional set of possible credit card processing fees:

1. Set Up Fee: You can expect to pay a one-time start up fee when first commencing your real-time merchant account. The actual fee can vary widely from company to company ($100 to $1,000). Recently a number of merchant account providers have eliminated all start up fees. Again, it is wise to assess the whole package of credit card processing fees being charged to determine which package is best for you. 

2. Gateway Fee: Your processing service will almost always charge you a monthly credit card processing fee known as a gateway charge (usually $10 to $35) to cover its costs of accessing the gateway service utilized.

Manual Online Credit Card Processing Fees:

Manual Online Credit Card Processing Fees

If you choose to go with credit card processing online, there is usually only one additional credit card processing fee you will incur:

1. Software Purchase or Lease: In order to process your customers' credit card transactions manually online, you will have to either purchase up front or lease a software program from your provider. For purchases, the prices range from $200 to $700. Alternatively, monthly payments for leases can vary widely, depending upon the software and the term of your lease (12 to 48 months usually). Recently a number of merchant account providers have eliminated all start up fees.

Generally speaking, you will be better off purchasing the software if the provider will allow it, for two reasons. First, a one-time purchase of say $300 for the software could cost you more than $1,000 in fees if instead you choose to lease it. Second, if your business fails in its early stages, you will still be liable for the ongoing lease payments for the remainder of the lease term. 

Some companies will offer buy-out provisions in their leases, allowing you to buy the lease out (i.e. purchase it) during the term for a specified one-time payment.

Retail Credit Card Processing Fees:

Retail Credit Card Processing Fees

In addition to the universal credit card processing fees, retail merchant accounts have one unique fee:

1.Terminal Equipment: The terminal equipment required to swipe credit cards can usually be either purchased outright or leased. Again, you should weigh the comparative advantages of each option, but up-front purchase is often the best way to go

For purchases, prices start at about $200 and can increase significantly from there, depending upon the features you want your terminal to include. Monthly payments for equipment leases can also vary widely, depending upon the features and the term of your lease (again, 12 to 48 months usually). Recently a number of merchant account providers have eliminated all start up fees.

Low Credit Card Processing Fees is The Bottom Line

When it comes to reviewing the comparative credit card processing fees being charged by merchant account providers, you should keep two things in mind: 

Always assess the fees charged by a particular provider as a package. What will it cost you in total up front, and what can you expect to be paying all in on a monthly basis? Before committing to a provider, always make sure you are aware of all the possible credit card processing fees that may be levied against you.

NEXT: Click here to see what you and your credit card processing service can do to prevent fraud and costly chargebacks.

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