7 fees to know about when shopping for your next merchant account

7 fees to know about when shopping for merchant accounts

A merchant account allows businesses to accept and process credit and debit card payments from customers. When shopping around for one, compare several providers against each other in order to find out which provider offers the best rates and lowest fees.

There are many types of merchant accounts available, including retail, online, telephone, mail order and wireless. 

E-mail or call a company if there is a posted charge that you do not understand. E-mailing or calling a company also helps establish how easy (or difficult) it will be to contact someone in the future should you have a problem with your merchant account.

When comparing merchant account providers, don't forget to inquire about and calculate the following rates and fees:

• Application fee: Some banks or firms will charge you a fee when you apply for a merchant account, regardless of whether or not you are approved for the account.
• Setup fee: Once your merchant account is approved, you may incur a setup fee to cover the administrative costs involved in establishing your account.
• Statement fee: This is the fee that you are charged at the end of each monthly processing cycle. The statement itself will show how much credit and debit card processing was performed by your account, and also what fees were generated as a result of this processing.
• Chargeback: This rather high fee ($30 to $60) is charged to your account for every fraudulent transaction on your record. A chargeback is also incurred whenever a customer successfully disputes a transaction.
• Monthly minimum fee: This fee is charged to your merchant account should you not generate enough sales to pay a certain minimum monthly fee amount. For example, if your monthly minimum fee is $30, and your qualified credit and debit card processing fees total only $20, you will incur a $10 monthly minimum fee on your account. This fee covers the provider's costs for maintaining your account.
• Early termination fee: This fee is charged if you cancel your account before the end of your contract term. While most merchant account contracts last between one to three years, other account contracts may have a five-year term. Additionally, you may be required to pay all remaining statement and monthly minimum fees, as well as a "lost profit" fee that is based on a theoretical calculation of future profits.
• Discount rate: This is a charge that you are required to pay for the privilege of accepting credit and debit cards. Discount rates are divided into tiered systems, with each successive tier having a higher rate than the one before it.

Currently, three-tier discount rate systems are the most common. The three-tier system is comprised of qualified, mid-qualified and non-qualified rates. A qualified rate is the lowest (and most often quoted) rate charged to a merchant for "standard" credit and debit card transactions. A mid-qualified rate is assessed for "non-standard" transactions, such as those involving a consumer credit card being keyed into a credit card terminal instead of being swiped. Rewards-based or business credit cards also typically fall into the mid-qualified rate category. A non-qualified rate is assessed for any transactions that do not fall into the qualified or mid-qualified rate categories. This can occur if, for example, a credit card is keyed into a credit card terminal instead of being swiped and address verification is not performed. Alternately, this may occur if a business credit card is used and all required fields are not filled in.

Updated: September 2,2023