there other fees or expenses involved?
Don’t think of your merchant account as an expense. Rather,
it is an investment in the success of your business, so remember
this DOES NOT cost money but makes you money. Your sales should
increase significantly if you begin accepting credit cards.
Application fee - This should be under $100. ISO’s charge
a fee to process your paperwork with the processor. ISO's
will usually waive this fee.
rate - A discount rate is the fee that a credit card processor
charges a merchant who wants to process credit card sales.
There are two types of discount rates.
Card present - The first type of discount rate is a card present
discount rate. Banks identify card present with retail businesses
because the credit card is present at the time of sale and swiping
the credit card through the terminal processes the card. The
range for this type of discount rate is usually from 1.59% to
Card not present - The second type is card not present. Banks
identify card not present with mail/telephone order businesses,
service or Internet businesses. The credit card is not present
at the time of sale and must be manually keyed or entered into
a credit card terminal or software program. This type of transaction
is slightly riskier and therefore you can expect to pay slightly
more than for a Retail Card Swiped Transaction. The range for
this type of rate is usually from 2.25% to 2.49%.
Transaction fee - A transaction fee is a fee that the processor
charges a merchant’s to dial into the network and verify
that a credit card is valid and has available credit. This fee
covers the cost of the terminal dialing out through a phone
line or through the Internet. There is no charge from your phone
carrier for this call as the terminals usually dial local or
Toll Free Numbers. For retail accounts, the transaction rate
generally falls between .25 and .40 cents. So, to continue the
discount rate example above, if you are quoted a discount rate
of 1.79% and a transaction rate of .25 and receive a credit
card payment of $100, $2.04 (equivalent of 1.79% times $100
+ .25 will now be deducted from your bank account for that transaction.
Please note that some merchant service providers “bundle”
their rates, and include the discount and transaction rates
as one charge. For example, instead of quoting a discount rate
of 1.79% and a transaction rate of .25, a merchant service provider
may just give you one rate, such as 2.10% bundled. In this scenario,
if your average ticket were $100, you would owe $2.10 (equivalent
of 2.10% times $100) for each transaction. Batch fee - This
is a small daily fee charged to batch or close out all your
transactions. Batch fees are typically the same as your transaction
fee. This fee ranges from 25 cents to one dollar.
Statement fee - This monthly fee typically ranges from $5 to
$20. This fee pays for you to receive a Monthly Statement which
breaks down all of your credit card transactions. A Monthly
Statement summarizes all activity for the merchant. The statements
are sent automatically at the end of each month. This Statement
should be used to balance your checkbook. Some processors have
on-line transaction reporting available, providing up to the
minute, detailed information merchants can use to confirm payments,
identify processing problems, and other issues. Reading your
statement can sometimes be difficult but it is important you
understand what it says. Once you receive your statement and
you have questions call customer service or your sales representative
to explain how your statement.
Customer Service Fee - Some companies charge a modest monthly
fee for the merchant assistance they provide. This charge should
not be more than $10 a month and is rare if the processor is
charging you a statement fee.
Monthly minimum - A monthly minimum is not a fee unless you
do little or no sales each month. It is calculated by multiplying
your total sales times your discount rate and then adding your
Example: Keyed Business – Discount Rate is 2.49% + .30
cents per transaction.
Visa/MC Sales $1,000.00 in 10 transactions of $100 each.
$1,000 x 2.49% = $24.99.
Total = $24.99.
You missed the minimum by .01 cent of $25 and therefore you
pay .01 cent. If you had come up with $23.00 in total fees,
you would pay the $2.00 difference to hit your monthly minimum.
Example: Swiped Business - Discount Rate is 1.79% + .25 per
Visa/MC Sales $1,000.00 in 60 transactions of $25 each
$2,000 x 1.79% = $17.99
Total = $35.80
You hit the minimum of $25 and therefore you pay nothing else.
Most businesses should easily surpass the monthly minimum, and
owe nothing for this.
Those fees are less expensive than I thought it would be but there
must be some other hidden fees?
there other incidental costs you must be aware of associated with
your merchant account. Be sure your processor discloses all fees
before you sign any contracts, and you will not have any hidden
is a list of other fees. Some may or may not apply to your specific
Void Transaction - A voided transaction occurs when a customer
wants to return merchandise before the merchant has closed
his/her batch containing that transaction. Voiding a transaction
before the batch is closed saves the merchant fees and only
costs the transaction. Voiding a sale is similar to deleting
a sales draft before taking it to the bank for deposit. Voiding
a transaction before the batch is closed saves the merchant
fees and only costs the transaction. The merchant does not
pay the discount rate on that transaction because the batch
has not settled and the sale is not “official”.
If possible, void transactions before the closing the batch.
Annual fee - This once a year for maintenance and system upgrades
is an automatic deduction from your checking account. An Annual
Fee should not be more than $99 per year. Some processors are
starting to charge this fee. Make sure to ask your ISO if there
is an Annual fee.
Debit Card fees - It is much less expensive to accept a customer's
debit card rather than a credit card. Most merchant service
providers charge a flat fee, generally ranging from .35 to .75
for each debit card transaction. The credit card discount and
transaction rates do not apply when you accept a debit card.
Debit fees only apply to merchants who have this service. Please
note that you will need an encrypted pin pad to process customers'
debit cards so that they may key in their private four digit
number into the pin pad. This will be an additional charge,
and should be less than $200. It may be worth the expense as
debit cards cost you much less to process than credit cards,
as previously stated. While you may decide to allow your customers
to pay with debit cards, it remains imperative to also allow
for credit card use.
Over limit fee - When you apply for your merchant account, you
indicate how much monthly volume you expect to process. Your
account, approved to process that amount, will subject to an
over limit fee. You can avoid the over limit fee in any given
month if you believe your sales will be over the top by calling
customer service and letting them know in advance. If your sales
will continue to be over the limit for the following months,
you can simply ask them to bump you up to the next level.
Reserve account - Processors will often identify certain merchant
accounts as a higher risk. These accounts pose a high risk to
a processor in terms of charge backs. In other words, the processor
expects that a high risk account will have more charge backs.
Processors will accept higher risk accounts but often ask the
merchant to place a reserve with them to protect the processor
are four ways that a processor will ask a merchant to start
Place a dollar amount in a reserve account equal to one month
processing limit. The processor holds this amount for the
life of the account. This money is released to the merchant
only after his merchant account is closed and 210 days have
the processor to hold in reserves the first month’s
credit card sales done by the merchant The processor holds
this amount for the life of the account. This money is released
to the merchant only after his merchant account is closed
and 210 days have passed.
processor will hold a percentage of gross sales each month
until the reserve amount equals one month processing volume.
This percentage is usually anywhere from 5% to 25% of monthly
gross credit card sales.
the processor to establish a “sixth month rolling reserve”.
The Processor will hold 5% of each months sales until the
7th Month. On Month 7, all reserve dollars from Month 1 will
be released to the Merchant. On Month 8, all reserve dollars
from Month 2 will be released to the Merchant and so on.
Programming or encryption fee - The ISO can charge a programming
or encryption fee, reflecting the effort of your merchant service
provider to make your existing terminal compatible with their
system. Others do not charge this fee directly but include it
in their set-up fee.
Chargeback fee - the MSP will charge a fee when someone disputes
a credit card sale that originated with your business. The fee
can range from $0 - $40 for each chargeback. It is imperative
for you to reduce the likelihood of chargebacks through customer
service intervention, fraud prevention, etc. Chargeback’s
can be avoided by setting your account up properly from the
beginning. Having your complete company name and customer service
phone number printed on Customers statements is a great way
to avoid chargebacks. That way, when a customer gets his bill
and has a question about the “charge” on his account,
he can immediately call you and get his questions or problems
Return - A return transaction occurs when a customer wants to
return merchandise after the merchant has closed his/her batch
containing that transaction. Returning a transaction after the
batch is closed costs the merchant the discount fees and the
transaction fees. A merchant will pay the discount rate for
the initial sale if returned plus two transaction fees. For
example, if a discount rate of 2.75% paid for every sale a $100
sale will cost the merchant $2.75 for the sale and $2.75 for
the return of the sale for a total of $5.50. This is why many
merchants often have stiff return policies or a fee for returned
items. AVS fee (address verification service) – Many credit
card processors offer address verification service. This service
will match shipping information with the cardholder's billing
address. There are different AVS codes that will indicate complete
or partial match. When addresses do not match, merchants should
discuss the discrepancies with their customers before shipping
orders. For example, the street address may match but the zip
code does not. The merchant must then decide to either ship
or contact the customer for verification. Using AVS lowers fees
but is not a requirement to either ship or not. To reduce confusion
merchants should clarify that billing information is required
regardless of the shipping address. AVS works with cards issued
in the United States. AVS is a service used by merchants who
take orders over the phone or the Internet and is an extremely
useful tool to reduce fraud.
Mid-qualified and non-qualified fees – Along with the
discount rate, you must know these rates. The mid-qualified
and non-qualified rates are surcharges (i.e. transactions that
do not meet certain Visa/MasterCard requirements. For example,
even if you manually key in a transaction with an AVS match,
your rate may go up a little (but not as high as it would if
you do not have an AVS match). If you do not batch out the transactions
within 24 hours, your rate will increase, too. Furthermore,
if you accept International, corporate or government cards,
you rate will go up substantially. There are surcharges based
on varying factors.
Termination or cancellation fee – Clients, seldom informed,
may only discover this expense when they switch processors.
It can be as high as $400 if you end processing with a particular
merchant service provider, especially if you only employed their
service for a short length of time. The fee is NOT applicable
as long as you do not switch providers! Ask, or better yet,
read your provider’s termination/cancellation policy in
Retrieval Request - A retrieval request is what happens when
a cardholder cannot remember a credit card transaction, or the
bank wants order information for some reason. The card issuer
initiates a retrieval request, in which the merchant has 10
days to respond with the order information or the retrieval
request will turn into a charge back. There is usually a retrieval
request fee issued against the merchant also in these cases.
Cost varies from $2 to $15 depending on the processor. All fees
and charges are on the merchant agreement. Be sure to read it
I hear American Express and Discover are not used much and is
more expensive than the discount fees?
American Express or Discover is very important for any business.
Your current processor will process these transactions as a
service to you and usually do not charge any additional fees.
Merchants need to give their customers every possibility to
buy their service or product. Your current terminal or software
program can process all major credit cards. Funds are deposited
directly to your checking account just like Visa and MasterCard.
Great, so it is not really an added expense to take American Express
or Discover. But there must be a fee from the credit card companies
Express does not charge a set up fee. Your ISO can usually set
up your account to accept Discover at the time of your Visa
and MasterCard Application. American Express offers two pricing
Discount Rate - Using this plan, you only pay American Express
a small percentage of each transaction your customers make
with the Card. There is no set monthly fee. This fee is approximately
3% but varies based on your industry and average size ticket.
American Express does not differentiate between Card Swipe
and Keyed Transactions like Visa and MasterCard do.
Flat Fee - Eligible merchants pay a monthly flat fee of $5,
with no additional charges. Unlike the discount rate pricing
plan, you do not pay an amount for each American Express sale.
Businesses must have less than $5,000 in annual American Express
sales, and submit, authorize, and receive payments electronically
to be eligible for this plan.
Statement Fees – American Express does not charge an extra
Statement fee. These transactions are reported on your Monthly
Merchant Statement from your MSP. Discover offers a tiered pricing
plan based on one of 3 types of businesses. Retail, Restaurant,
and Internet or Home Based Businesses: Discover will also charge
a one time set up fee of $25 which is automatically billed on
your first month’s statement. Your ISO can usually set
up your account to accept Discover at the time of your Visa
and MasterCard Application.
Discount Rate - Retail Businesses:
Average ticket $00 to $20, your rate is 2.52% + 8 cents
$21 to $30, your rate is 2.22% + 8 cents
$31 to $50, your rate is 1.99% + 8 cents
$51 to $70, your rate is 1.86% + 8 cents
$71 to $90, your rate is 1.80% + 8 cents
$91 to $120, your rate is 1.77% + 8 cents
$121 to $150, your rate is 1.73% + 8 cents
$151 and above, your rate is 1.69% + 8 cents
Internet & Mail Order; Out-of-Home Businesses
Average ticket $00 to $20, your rate is 2.97% + 8 cents
$21 to $30, your rate is 2.67% + 8 cents
$31 to $50, your rate is 2.44% + 8 cents
$51 to $70, your rate is 2.31 % + 8 cents
$71 to $90, your rate is 2.25% + 8 cents
$91 to $120, your rate is 2.22% + 8 cents
$121 to $150, your rate is 2.18% + 8 cents
$151 and above, your rate is 2.14% + 8 cents
Average ticket $00 to $20, your rate is 2.18% + 8 cents
$21 to $30, your rate is 1.93% + 8 cents
$31 to $50, your rate is 1.73% + 8 cents
$51 to $70, your rate is 1.62% + 8 cents
$71 to $90, your rate is 1.57% + 8 cents
$91 to $120, your rate is 1.55% + 8 cents
$121 to $150, your rate is 1.51 % + 8 cents
$151 and above, your rate is 1.49% + 8 cents
How much should I pay for a terminal or software solution?
varies dramatically based on the model, features required and
technology required. There are many different makes and models
available all with different types of features that allow merchants
to perform any function they need. I will list the different
combinations that merchant can choose from with a range in cost
per unit I think is reasonable based on features but remember
ISO’s set prices. One price for a particular unit by one
ISO and a remarkable different price by another ISO for the
same make and model.
Terminal alone (Free to $500)
Terminal with external printer ($200 to $750)
Terminal, internal printer and internal debit pinpad ($400 to
Real time online software (free to $750)
Computer software (free to $500)
Printer ($200 to $350)
Debit pinpad ($50 to $200)
Check reader ($200-$500)
Wireless unit using cellular ($500 to $1,500)
Wireless unit using radio technology ($500 to $1,500)
technology varies greatly. Just remember to compare prices,
ask about available refurbished equipment and do not be sold
on equipment you do not really need.
I do not have much capital and want to save my money for marketing
and other things I need to do. What do you advise?
am not a big fan of leasing only because you will pay two to
three times more for a piece of hardware or software than if
you had purchased it. It can be helpful to conserve capital
as long as you do not end up paying 4 times more for a piece
of equipment or software than if you had paid cash. Personal
credit can really effect the monthly payment, sometimes doubling
the monthly payment if you had good credit. Most leasing companies
include a fair market buyout at the end of the lease which really
means at the end of the lease a leasing company has the right
to determine the value of the hardware or software and charge
you that dollar amount for you to actually own the hardware
or software. This amount is usually 10% of the total amount
of the payments you paid throughout your lease term. This can
add $200-$400 to your total cost of hardware or software. One
more important thing to remember is that at the end of the lease
you must contact the leasing company and request cancellation
of your lease. Otherwise, the contract usually turns into a
Month to Month Rental. If you are considering a lease option,
remember the above listed prices, read the contract, ask about
buyout cost, be sure the lease contract expires without notification
and keep the lease term short. Use a calculator and add up the
lease payments along with any monthly fees a leasing company
will charge including insurance charges.
What are some things I can do to reduce chargebacks not related
are a few pointers I can give you to help prevent chargebacks
but the best advice is to deliver a good product or service
and have excellent customer service.
Credit card statement – Merchant account providers provide
a service that will place your business name and phone number
on the credit card statement of your customer. This will reduce
confusion if the customer does not remember buying from your
company. This occurs quite a bit when a customer purchases
products or service from Internet businesses. If the customer
does not remember the purchase, he or she can call the number
listed on their statement to verify the purchase. Contact
your MSP to request this service.
Market using your business name – Place your legal business
name on marketing or web sites. This will reduce confusion if
your legal name is different from your DBA (doing business as)
and helps to identify your business name with purchases made
by a customer.
Cash advance – Do not process your own credit card through
your merchant account to give yourself a cash advance. This
is a violation Visa and MasterCard regulations that does not
allow merchants to process their own credit card to receive
a cash advance. The fees associated with a cash advance are
usually much higher than if a merchant processed his own card
to receive a cash advance. This costs the issuing bank money
because if the merchant had received a cash advance from their
issuing credit card company instead of processing their own
card the bank would make much more money. Never process your
own credit card.
Do not Factor credit cards. A company will process credit card
transactions through their own merchant account for a merchant
that does not have their own merchant account in exchange for
a percentage of the transaction. Heavy fines can occur by factoring
credit cards. Often merchants who have lost there privilege
to process credit cards wills seek out other merchants to run
their credit card sales. The problem is that the merchant running
the transactions is responsible for those transactions. When
a customer receives their credit card bill, the name of the
merchants he/she has purchased from will appear on that statement.
If the cardholder does not recognize a particular merchant,
he/she will dispute it because he/she did not buy anything from
that merchant. The merchant who factored the transaction will
then lose their ability to have a merchant account.
Charging a premium to accept a credit card - Visa and MasterCard
want a merchant to treat credit cards like cash. Charging more
on a credit card purchase is a violation of Visa/MasterCard
regulations. If a merchant charges more on purchases a customer
will not use their credit card and the issuing bank will lose
interest on that sale. Visa and MasterCard also allow banks
to issue credit cards and receive money for sales so it is in
their best interest to accept every possible sale by credit
card. Setting a minimum can result in losing your ability to
accept credit cards.