You should compare the various fees companies charge as a 'package', taking into account the fees as a whole rather than getting hung up on simply one or other particular fee.
Determine what it will cost you upfront to commence processing, and what you may have to pay thereafter each month based on your processing volume.
With that in mind, let's take a look at the most common merchant account fees you can expect to confront with your merchant account:
Discount Rate: The percentage charged on the amount of each sale processed in your merchant account. With real-time and manual online processing you can expect to pay in the 2.20% to 2.45% range, and with retail processing in the 1.60% to 1.80% range. There are in fact 3 different discount rates: Qualified, Mid-Qualified and Non-Qualified, each of which is discussed below. And if you are viewed as carrying on a high risk business, or an international or offshore business, the discount rate can be much higher.
Qualified Discount Rate: The best rate, which is charged if it is a card-swiped transaction and the merchant batches-out electronically (see below) at the end of the day. (However, an internet business may also receive the qualified rate by obtaining an AVS response (see below) with an order number and then batching out.) The qualified discount rate is the rate you generally see marketed. If not all conditions are met, you will be surcharged with the Mid-Qualified or Non-Qualified rate.
Mid-Qualified Discount Rate: This surcharge is added to the Qualified Discount Rate to cover the situation where a retail merchant keys a transaction (it is not swiped in through a machine) or he does not batch-out at the end of the day.
Non-Qualified Discount Rate: This is charged where the merchant does not have the customer's physical credit card to swipe ("card not present"). It also applies on internet, phone and mail orders; for keyed tranactions without AVS; for transactions on a government, corporate or foreign card; or where sales transactions are not batched within 24 hours.
Keyed: This occurs when information from a transaction is manually typed into a terminal or computer, because the customer's card is not present or the merchant's swipe machine can't read the card.
Batch Processing: The merchant transmits for processing the "batch" of daily sales stored in his terminal. A Batch Header Fee of around 25 cents per day can be expected.
Address Verification Service (AVS) Fee: Keyed transactions must use the AVS service or the transaction will be charged the mid-qualified rate. The fee is usually 0 to 10 cents per transaction. The AVS service ensures that the billing address given by the customer matches the credit card, thereby reducing the risk of fraud.
Transaction Fee: A fixed fee for each transaction is always charged, usually between 20 and 30 cents per transaction.
Monthly Minimum: The minimum amount you'll be charged in discount fees in a particular month (generally $15 to $30), even if you do no processing whatsoever. You pay this only if the total discount rate fees paid are less than your monthly minimum. It is the least amount you will pay in a month, no matter what your sales are, but once you have reached the minimum in discount rate payments, you won't be charged a monthly minimum fee.
Monthly Volume: The maximum monthly dollar volume you as a merchant have been approved to process through your merchant account. If you expect to exceed this ampount, you should contact your merchant account provider.
Statement Fee: A monthly fee for 'customer support', the preparation of your monthly statement and for other services (usually $10 to $20).
Voice Authorization Fee: A small fee required when a credit card issuing bank sends a "Please Call" message to the merchant instead of an authorization number and the merchant must phone to receive authorization for the transaction. This may also be charged when your online system or physical terminal goes down and you have to phone for an authorization.
Chargeback: A chargeback is the result of a disputed charge by a customer. The card issuer initiates a chargeback against your merchant account, and the sale amount of the disputed transaction is immediately debited from your merchant account. You then have 10 days in which to dispute the chargeback, usually by providing the card issuing bank with a proof of purchase by the customer. You will be charged a fee (the chargeback fee) of $20 to $35. Having a large history of chargebacks can cause your merchant account to be terminated and can make it difficult to get a new merchant account thereafter.
Gateway Fee: For internet merchants, the gateway connects your website's shopping cart with the card processing service. The usual fee to pay for gateway access is around $15 to $30 per month.
Re-Programming Fee: This fee is usually seen where a retailer changes merchant accounts and some 'reprogramming' is required.
Reserve: For high risk merchants, a reserve or holdback is often established to protect the bank against the risk of catastrophic losses. It is either an upfront lump sum paid before you begin processing, or a lesser amount deducted monthly (5 to 15% of your monthly sales).
Annual Fee: Some companies impose an annual fee of $25 to $50.
Termination Fee: A fee payable should your merchant account be terminated. Review your contract carefully for any such termination fee as it can be quite large.
Application fee: Some providers will charge a one-time fee for applying for a merchant account (usually refundable if your application is not successful). These days application fees are usually only sought for high risk, offshore merchant accounts.
Hardware/Software Fees: For online processing, merchants will have to purchase or lease a software program. Retail merchants will need to purchase or lease terminal equipment, printers, etc. There are a few providers these days who waive this fee for internet accounts, or who provide a free refurbished swipe machine with the merchant account.
Set Up Fee: Internet merchants may be charged a one-time fee when setting up their processing system, although many companies now waive this charge.
And be sure to check out our recommendations for the top internet merchant accounts, phone & mail merchant accounts and retail merchant accounts.