10 things you must know about merchant account fees

10 things you must know about merchant account fees

One of the most important parts of a merchant account agreement is the fee structure. Merchants should know the 10 basic types of fees before opening a merchant account. Keep in mind that the type of business associated with a merchant account can affect the overall cost as well. Ask about these types of fees and read the fine print before signing your application.

1. Discount rate. This is the most important fee of all. It is the percentage charged for each transaction and is paid to the merchant account processor. The rate is usually higher for online transactions, lower for processing a physically present card.

2. Setup fee. This fee is pretty straightforward. It is charged to process your merchant account application or to set up your account. Not all processors charge a setup fee; some will waive them for sales promotion.

3. Equipment fee. Merchants can be charged for terminals, peripherals and installation fees for equipment. Stores will usually need to buy or lease a credit card processing machine to do business.

4. Internet gateway fee. A gateway fee is charged in addition to standard transaction fees. It only applies to merchants using an Internet payment gateway such as Authorize.net.

5. Chargeback fee. This fee usually occurs when a customer disputes the amount of a purchase or has their card stolen and used for unauthorized purchases. Whatever the case, the funds do not get sent to the processing company and you will receive a chargeback fee for the return.

6. Monthly minimum fee. A monthly minimum fee is charged when the discount rate for Visa and MasterCard transactions is not met on your account. This fee is charged to make up the difference to meet the monthly minimum in the event that your monthly volume is low.

7. Reserve fee. A reserve may be set up for a business that is perceived as a high-risk account. The reserve can be a lump sum or charged as a monthly percentage on sales. Ask the processing representative if this reserve can be reduced if you don't have a lot of chargebacks.

8. Termination fee. Most canceled merchant accounts will receive a termination or cancellation fee. Check with your provider for its specific policy on this fee.

9. Address verification system (AVS) fee. Merchants who do not swipe cards through a terminal are usually charged an additional address verification service fee. This service gives merchants ZIP code and address information for cardholders and helps reduce fraud. It is also mandatory for manually keyed in Visa and MasterCard accounts.

10. Hidden fees. Make sure to ask the sales representative if there are any teaser rates so that you don't get slammed with hidden fees after the trial period.

Published: June 2,2023