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Merchant Accounts Fees and My Recommendation
by Yisroel Goodman
Merchant Account Fees
There are so many different fees which can be charged on a merchant account, making it very difficult to determine which is the most cost-effective. Naturally every provider trumpets those areas where they are cheaper and neglects to mention the others. Here I will list all the fees (at least I hope it's all the fees) which can be charged, explain what they are, and more importantly, explain how to make some sense of them.
When you apply for a merchant account you are not dealing with just one entity. You may be getting your account through a provider, but there is also a gateway (the company which actually places the charge and handles the transaction between the provider and the cardholder's bank), the payment brand (Mastercard, Visa, Discover, Amex, etc) and the bank issuing the credit card. All of these entities have to get their share and can change their rates at any time.
Application Fee
Some companies charge an application fee to open an account. Even those which claim not to may hit you with a third-party application fee. "We don't have one but the gateway company charges to open an account with them." So just because it says "no application fee" doesn't mean you won't be hit with one.
Gateway Fees
One of the most widely-used gateways is Authorize.net. They charge a monthly gateway fee. There are several ways this fee can be levied.
1) the gateway charges the provider $8 a month. The provider charges you $15 a month. This fee may also allow a limited number of transactions, such as 250 a month, with a charge per transaction if you go beyond that. There may be an extra cost of a few cents per transaction for address verification.
2) the gateway charges you $15 a month directly (and gives the provider a commission). Again, there may be additional charges for transactions beyond 250 a month and address verification.
If your provider claims there are no monthly charges, ask who pays the gateway fee, how much it will be, and make sure you get it in writing. By the way, getting it in writing doesn't really help unless you're ready to take it to court. One of my merchant accounts told me it would be $10 a month and proceeded to charge me $23 with no explanation. Another claimed it was already included in their fee and each time Authorize.net charged me directly, the provider promised to reimburse me, which still hasn't happened. I have the guarantees and promises in writing. You can read Merchant Account Experiences for all the details.
Annual Fee
Some providers charge an annual fee.
monthly fee
Some providers charge a monthly fee on top of the gateway fee. Some call it a statement fee.
monthly minimum
You have to guarantee the provider a minimum amount of income per month. This is usually $25. If you don't bring in $25 in income (not in charges), you pay the difference. Suppose you pay 2.5% on your transactions. You have to charge a minimum of $1000 a month to bring in $25 in charges ($1000 X 2.5%). If you only charge $500 one month, you will have to pay the $12.50 difference. This is per month. It doesn't help if you charged $2,000 one month, you will still have to charge at least $1,000 the next month. So it does not make sense to get a merchant account unless you see yourself charging enough to cover your minimum. Incidentally, one of my merchant providers opened my account on September 30th and proceeded to charge me the $25 monthly minimum for September since I did not do $1,000 in charges in that one day. I challenged that one and eventually got it refunded.
rates
There are approximately 80 different rates you can be charged depending on many different variables, including the type of card and your business classification. The rate the provider is charged by Visa, Mastercard, Amex, Discover etc is called the interchange rate. The provider adds a percentage on top of that as their fee. Some providers work to get you the best rate and then add something like a quarter of a percent. Others are lazier and quote you three rates: qualified, mid-qualified, and non qualified, with very large gaps. For example, the qualified can be 1.7% while the mid-qualified is 3.6%, so if the transaction doesn't qualify for the 1.7% rate it jumps up almost two whole points. The provider is happy because the more you pay, the more he gets. The honest provider will work to add many rates to your account so if you fail to qualify for the lowest rate, the next rate is only a tenth of a percent higher.
Another way an unscrupulous provider will get you is by not explaining what these rates mean. One provider told me the qualified rate was for US-based personal credit card, the mid-qualified rate was for US-based corporate cards and the highest rate was for non-US cards. Since 80% of my transactions are US-based personal cards, I expected to get the lowest rate for most of my transactions. Instead, 90% of my transactions were at the mid-qualified rate. Only then did the provider explain that reward cards (the credit cards which pay you back in points or airline miles) are all mid-qualified. I would guess at least 80% of the credit cards in use have some sort of rewards program. If I had known this in advance, I would have looked for a different provider.
In evaluating which account has the lowest fees, takes those rates with a large grain of salt. Ask specific questions about what YOU will pay. I have found that an account which has rates of 2.2%-3% actually worked out cheaper than an account with rates of 1.7%-4%. With the first account, I ended up paying an average of 3.3% after all fees were taken into consideration. The second account averaged 4.7%.
batch fee
Once a day all your transactions are sent up to the processor in a batch. Some providers charge as much as 35 cents per batch, which adds another $10 a month.
length of contract and cancellation fee
The contract length can be anywhere from 30 days to three years. Some providers charge as much as $495 to cancel the contract before the expiration.
PCI DSS fee
This stands for Payment Card Industry Data Security Standards. Because of all the horror stories about servers being compromised and credit card data stolen, the payment brands are mandating that merchants who store or transmit credit card information comply with certain security standards. Some providers insist that this compliance must be done by a third party who charges a fee of approximately $120 a year (and we suspect shares it with the provider). Other providers will send their own expert to the merchant free of charge. (Note: we do not store any credit card information on our site.)
My Recommendation
Having investigated numerous merchant accounts, the best one I found came recommended by a good friend who has been with them for many years. I spoke at length with a representative and feel comfortable recommending him. Since the fees vary according to the type of business being conducted, I can only give you the general information.
They promised that for those I recommend there would be NO application fee, annual fee, monthly fee, batch fee, avs/cvv fee, cancelation fee or PCI DSS fee. There would be a statement fee of $10 a month and a gateway fee to authorize.net of $15 for 250 transactions. There may be a one time fee of $89 to authorize.net. Instead of quoting a qualified, mid-qualified and non-qualified rate, they use the interchange rate table with about 80 rates in it and said the average rate would be about 2.3% plus 20 cents a transaction. If this sounds good to you, email sales@ccs-digital.com and I will provide the contact information so you can talk to them and decide for yourself.
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