Credit card companies have earned disrepute for charging fees under many pretexts and trying to swindle the customers. Same is also true for merchant account processing. But it is important to realize the fact that charges and fees are a source of revenue for them. And being knowledgeable about various fees can help one appreciate and understand better the fee structure and find the best credit card processing service for your business.
Listed below are the various types of fees that are usually charged by card processors:
Application Fee: You pay this upfront at the time of applying for the merchant account service but is normally not charged by reputable companies. Try avoiding this fee as far as possible.
Startup Fee: This is the fees taken for setting up the credit card processing account. It is usually in the range of $25 to $35.
Statement Fee: This is charged for providing detailed account activity statements at the end of each billing cycle. These list out useful information like the number of transactions processed, the time and dates of these transactions etc. You pay about $7 to $10 for this service.
Minimum Monthly Fee: This is charged to ensure that your account generates revenue for the card processing company even if there are no transactions or if they are below a certain limit. This is also called ‘monthly minimum not met’ charge.
Discount Rate: It is the main fees imposed for accepting credit cards and is a small percentage of each transaction processed. It normally lies in the range of 1.5-2 percent of each transaction. It could be higher for high risk businesses.
Chargeback Fee: This fee is applicable if a large number of transactions are charged back. Normally, a certain number of chargebacks are permitted in a billing cycle before this fee is imposed.
Gateway Fee: You need to worry about this only if you will accept payments over the internet. To enable transactions on the web, a credit card processing firm would need basic web infrastructure in place including a shopping cart function and/or a portal that allows customers to make and track payments. This fee is typically around $10 per month.
Termination Fee: This fee is billed for early termination of the contract. Normal contract periods are between one to three years. The fee varies from $100 to $300. But not all providers collect this fee.
As a rule of thumb, credit card processing should cost around 2% of total receipts. This figure is affordable enough for the companies to accept credit and debit cards as well as significant enough for the card processing vendors to profitably run their business. Any fee structure offering charges less than this may be enticing, but should be regarded very carefully as it is usually not worthwhile for the service providers to charge any lower than that. Be on guard against hidden fees and charges if the offer looks too good to be true. Review the contract carefully including the footnotes and fine print.
