Merchant-Account Fees — Knowledge Facilitates Comparison Shopping
I have been in the merchant-services business for just over six years now and have seen a lot of perplexed, confused, frustrated, and angry merchants who were never told how all the fees in their statements add up to the services being performed; they never received an explanation of what all the fees and terms mean.
This is a common complaint: “If I can’t understand the fees, how am I ever going to compare them with anyone else’s proposal? I can’t trust anyone.”
The answer is to find a reputable merchant-services consultant who will ask the right questions.
The following information, presented in Q&A format, will help you understand the basics of merchant-services programs, and give you more knowledge and thus more power to make the best decisions.
Q. What is a merchant account?
A. A merchant account is an account setup with a credit card acquiring bank/processor (acquirer), which allows you to accept credit cards for payment of the goods and/or services you sell.
Q. What kind of businesses will the bank/processor accept?
A. They accept retail, professional, tradeshow, mail-order, telephone-order, Internet-based, and home-based businesses.
Q. What credit cards will I be able to accept?
A. You can accept MasterCard, Visa, and Discover. You will have the option to select American Express, too, but requires a separate approval from American Express. There are no application or setup fees to request American Express.
Q. Do I need a business license?
A. No, you do not need to have a business license, trade name registration, DBA certificate, etc., but it is helpful.
Q. Will I receive a statement?
A. Yes, a statement is mailed out every month with the information on all deposits into your account, your total sales volume, and the charges for the month. You can also have access to this information online. Fees apply to both.
Q. How will I get my money?
A. Your money will be deposited directly into your current business checking account. Funds are almost always available within one to three business days unless there is a problem with the transaction. In many cases, you can apply for next-day funding for Visa/MasterCard and American Express.
Q. How long does the approval process take?
A. Most often you get approved for a merchant account in 24 to 36 hours. Occasionally, underwriters may request more information, which would delay the approval process.
It is recommended that you apply two to four weeks before you actually need to begin accepting credit cards. This will allow time to get you approved (in case of any underwriting request which can cause a delay), to get the software, and to make sure you are properly trained. Waiting until the last minute to apply for a merchant account is never a good idea.
Q. Is there a service phone number that I can call if I need help?
A. Upon approval of your merchant account you should have live, toll-free merchant assistance available to you 24 hours per day, seven day a week, year round.
The monthly statement you receive (or can get online) from your credit card processing company contains a lot of complex information. There are words and numbers everywhere that may or may not mean what you think. Understanding your statement and what you are being charged is critical to being an informed business owner and may even save you a lot of money.
The place to start is with the common terms that your credit card processor uses and that show up on your statement. This can help you have an informed conversation about your credit processing and possibly negotiate a better deal.
Q. What are the typical types of fees I should expect with my merchant account?
A. Most merchant accounts include the following fees:
This fee is assessed by the acquirer (bank/company you have your merchant account with) on each transaction. The fee is made up of the “interchange rate” that Visa and MasterCard charge on each transaction, which is paid by the acquirer to the bank that issued the card used in the transaction, plus the markup by the acquirer for managing the transaction for the merchant. Every bank charges a discount rate. The discount rate is the percentage of each transaction that the processing company charges to handle the transaction for you.
The discount rates quoted by some providers may at first glance seem to be low. Be careful. The rate you are quoted
by most sales people is the “qualified” rate. When a credit card transaction does not qualify for the “qualified” rate (as defined by Visa and MasterCard interchange rates), you may actually pay 1 percent to 2 percent more in card fees for that transaction. Often, you will also be charged additional transaction fees for each non-qualified transaction. As much as 30 percent or more of your credit card transactions will not qualify for the “qualified” rate.
The acquirer assesses this fee on each transaction. It is made up of the “network communication fee” charged to the acquirer by the processing network and the markup by the acquirer for managing the transaction for the merchant.
This fee is charged to the merchant by the acquirer as a service charge. This fee is often called a statement fee.
Monthly Minimum Fee
This fee is set by the acquirer as a minimum threshold of card transaction fees they expect to collect per merchant account on a monthly basis. Card transaction fees are defined as the “discount rate” and the “transaction fee.” If merchants fail to accept enough card transactions to meet the threshold, they will be charged the difference between actual card fees collected and the minimum.
Here’s an example of how a monthly minimum works: An Internet merchant has a 2.44 percent discount rate plus a 23¢ transaction fee. The monthly minimum is $20. The merchant does six $100 transactions in one month: $600 x 2.44% = $14.64. Add six transaction fees: 6 x 23¢ = $1.38. Total collected card fees is $14.64 + $1.38 = $16.02.
In this example, the merchant did not meet the monthly minimum requirement of $20 in card fees. So the merchant would pay $16.02 (card fees) + $3.98 (difference between the minimum and actual card fees) for a total of $20. If a merchant does enough transactions to meet or exceed the monthly minimum, then the merchant pays only the actual card fees. Another way to look at this is that the merchant will pay the discount rate plus transaction fees or the monthly minimum whichever is greater.
Most acquirers charge cancellation fees. Typically, if you cancel your merchant account before three years, you can expect to pay $250 or more in cancellation fees.
Payment Card Industry (PCI) Compliance Fee
This fee is not charged to the acquirer by Visa and MasterCard. Beginning in 2008, many companies began charging a PCI compliance fee. This can be a monthly fee, an annual fee, or even a per-transaction fee. Regardless of how it is charged to a merchant, it may be another unnecessary fee that drives up business expenses. This fee can be negotiated.
Q. What fees are the lowest?
A. “Qualified” credit transactions and some debit transactions are the lowest, but beware, though, as many companies claim they have the lowest rates, but after you analyze all the additional or hidden fees, you will see that you will often pay more.
Some companies, for example, charge an additional 10¢ to 20¢ per-transaction fee on top of their normal per-transaction fee for certain transactions like mid-qualified and non-qualified transactions.
Q. What is the address verification system (AVS)?
A. If you sell via mail order/telephone order, or through the Internet, you don’t want to send a product to a false address and risk receiving a chargeback. The address verification system (AVS) lets you enter the customer’s home address and compares it to the address on file with their credit card company. If someone uses a stolen card, and wants products shipped to a false address, AVS will detect this for you. Some providers charge an additional transaction fee for AVS. Address verification is a fraud-prevention tool for merchants.
POWER IN KNOWLEDGE
This article included some common terms you will find on your monthly credit card statements. There are other important terms, issues, and concepts you will come across which play an important role in the understanding of credit card processing and fees.
Knowing a little bit about your credit card transactions, the important terms, and the fees you are being charged can save you a lot of money in the long term.
There is so much more to know. In today’s online world it is simple to access great information and to find what you need to learn. Whatever you do, require a written proposal from your processor with all the fees listed line by line. This will allow for an easier and fairer comparison when you are shopping. As they say, information is knowledge, knowledge is power — and having the power to make the right decision is a great feeling.
Scott Tanker is regional sales director for Benchmark Payment Networks. You can reach him at (609) 922-0201 or via e-mail at firstname.lastname@example.org. You can also visit his website at http://benchmarkpaymentnetworks-scott-tanker.com/