Merchant Account Pricing – Costs & Fees Explained
If you own or manage a business and are in the process of finding a merchant account provider to set up credit card processing services, you may have heard some of the industry jargon. With all the terms and conditions, it can be quite confusing.
Choosing the right merchant account provider for your business is complicated by the various fees and charges that different providers include. Rarely are merchants comparing apples to apples when determining which merchant agreement is best for their business. Simply put, a stated lower rate does not necessarily mean the best deal.
It’s important for merchants to do a little research and read articles like this to gain some understanding, rather than simply selecting a credit card processor that seemingly has the lowest rate.
The Merchant Account Discount Rate is the first quoted fee charged to a merchant. It is derived from Visa and MasterCard’s Interchange fee system and has three tiers; Qualified, which is the lowest rate, Mid-Qualified, and Non-Qualified. The tier is determined by whether the card is swiped or keyed-in and the type of card used in the transaction.
Personal cards that are used in card present, swiped transactions are classified as Qualified and have a rate of approximately 1.70%. Mid-Qualified rates apply to personal cards that are keyed-in rather than swiped, as well as rewards cards. This rate is approximately 2.10%
When a customer uses a corporate, government or international card the transaction falls into the Non-Qualified tier and is subject to the highest rate. Also, Non-Qualified rates will be applied to merchant transactions that are not submitted and settled within 48 hours.
Online transactions consist only of Qualified and Non-Qualified tiers. Personal cards used in online transactions are obviously non-card present transactions and the rate is higher than the Qualified card present transactions. This is due to the fact that online transactions are considered to be of higher risk due to potential for fraud.
On top of the Discount Rate is the Transaction Fee. The Transaction Fee is charged when the transaction has been sent to the card-issuing bank and has been authorized. The Transaction Fee is a flat fee charged per transaction, usually ranging between $.10 and $.50. This amount is decided by the merchant account provider or processor.
Most credit card processing companies include a Monthly Minimum to cover the costs of keeping the account active. This fee also helps to ensure that the merchant uses the merchant account to process credit card transactions regularly. A Monthly Minimum is typically $25. The Discount Rate paid from your the total charges must add up to $25 each month, otherwise the you will be charged the difference.
It is important to be aware of other fees that are associated with merchant accounts. Some processors tack on fees such as Batch fees and Customer Service (Maintenance) fees, and Annual fees. Early termination fees charge a merchant who leaves a contract within a specified period of time a fee for doing so.
Before signing a contract with a credit card processing company, it’s critical to understand all fees and charges. Ask questions to be sure that there are no hidden fees such as the Maintenance fees. If you sign a contract and later discover less favorable terms, you may find yourself facing a hefty early termination penalty.
If you have questions about what you should expect to pay for your business, call today. We have the industry experience and knowledge to let you know exactly what to expect. We’ve built our business on integrity and take pride in offering the best customer service available to merchants.