A brief look at merchant account fees

By Jeremy M. Simon

When selecting a merchant service provider for your business in order to accept credit card payments, one important consideration may be the fees charged for merchant accounts.  You may incur costs that include one-time fees, monthly fees, transaction fees, discount fees and more.

At the time your merchant account is set up, most merchant service providers will require an initial fee.  Such one-time fees could be called anything from an application fee to a setup fee to a gateway setup fee, or something else.  Regardless of the name given, they are the fee to get started with your merchant account.

Additional one-time fees may come in the form of costs for the software or equipment necessary for processing credit card transactions. 

Separately, nearly every merchant service provider will charge some form of monthly fee as an ongoing cost of keeping the merchant account available.  This monthly fee may be known as a statement fee, account fee, report fee or by another name. 

Some merchant accounts will charge several monthly fees that often run anywhere from $10 to $30 a month.  Meanwhile, other merchant service providers will charge a monthly fee as an alternative (or sometimes as well as) the monthly fees.

Meanwhile, when processing each credit card transaction, they are usually two costs.  The first of these is a per item fee that usually amounts to between 20 cents and 50 cents.

The second charge is the discount rate, which is a percentage of the transaction amount that depends on the type of credit card and the processing method.  The discount rate, also known as an interchange fee, generally amounts to 2 percent to 4 percent and primarily goes to credit card issuer.   

When looking to compare fees among various merchant service providers, be aware that the presentation of fees may not be as clear cut as outlined above.  Also, different rates may apply depending on the type of card used, which is based on both the card association, such as Visa or MasterCard, and the type of card, such as a reward credit card or debit card.

Furthermore, fees are impacted by whether the transaction is processed by being swiped, keyed in, or another method, as well as if the card passed certain fraud prevention criteria. 

Credit card companies explain that the variety of rates is due to the numerous levels of risk associated with transactions, such as having a greater risk when the physical card is not present.

Overall, generally the best way to figure out actual transaction processing costs is to simply divide the total of all fees by the total dollar amount processed.  This easy calculation will provide an effective rate for your merchant account.

Published: April 20, 2007

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