Getting setup with a merchant account is not too difficult. Understanding the pricing for the account is important in order to not have any surprises later on. The following fees are a few of those that may normally be considered "hidden" and are easily explained, but also something that will give you a few questions to follow up with your own provider. If your provider doesn't know about these fees, especially if you see them on the contract, it may be time to find a new provider.
The monthly minimum is a fee based on the discount rate. This is where you'll either pay your discount rate or your monthly minimum, whichever is higher. This fee generally doesn't affect retail accounts but usually always affects internet accounts because it takes internet accounts longer to "ramp up" their sales volume (usually). If you have a monthly minimum of $25, you'll need to process $1000 per month at an average discount rate of 2.5% to have this minimum "covered". If you process only $500 at that same average 2.5% discount rate, you'll be paying $12.50 in discount which is lower than your monthly minimum which means you'd pay the other $12.50 to get to that $25 minimum. Basically, if you're processing transactions on a regular basis and your volume exceeds $1000 per month, you'll likely never notice this minimum.
Many merchant providers will waive this fee, especially if you are a seasonal merchant. Work with your provider to verify that this fee can be waived and negotiate on this point if you need to. However, when you do get this fee waived, it may come instead with higher fees otherwise, just depends on what you can negotiate. I usually waive this fee as a provider when I charge "normal" pricing. However, in the event I drop the bottom out of all of my other prices, I do charge a monthly minimum.
Transactions are batched together daily usually automatically, but sometimes, if your terminal is programmed not to batch, this must be done manually. These batches of transactions are assessed a batch header fee, usually around $.25 per batch. That I know of, batches can be hundreds of transactions or even thousands of transactions and still only be assessed the one batch. Consider this a daily processing fee not to exceed about $7.50 per month assuming you are processing every day of the month. This is a lesser known fee and not a huge deal, but something you should be aware of anyway.
There is a fee known as AVS which stands for address verification system. This is the method of verifying transactions against the billing address on file, usually with a postal code match. What this does, especially if this is an internet account, is keep the rates low or keeps the transaction "qualified". If this is a retail account, this AVS can be used if the card mag stripe is unreadable and you must key in the number or if a customer is calling with a credit card number. This will also help to verify that the address matches and reduce the risk associated with processing that credit card.
Some merchant providers will charge an annual fee. This fee is usually negotiable and if you see this, you need to assess whether or not this fee is worth paying depending on how much your other fees are reduced because of this specific provider. There are several pricing structures that can keep your transaction costs very low, but these types of accounts produce very little revenue for the merchant account companies. This is good for you, but obviously the company that sets up these accounts must generate some revenue or else they couldn't stay in business either. In cases like this, the annual fee is a good way to satisfy both parties.
Not unlike other service businesses, merchant accounts also have a term. Usually 2 years, sometimes 3. Occasionally you can find a merchant account that is a "month-to-month", but it isn't as frequent as the 2 year term. Also, if you know for sure you will only be opening an account for a short term project, let your account representative know this beforehand so that he or she can arrange the contract to match this need. In the event that you have a 2 or 3 year term, there is usually an early termination fee that is assigned to this as well. This early termination fee is usually about $200 to $300. The main reason for this fee is that in the event you have been charging cards and then are no longer with your merchant provider (whether you've gone out of business or whether you have switched providers), the merchant account through which your transactions have been run is responsible for those transactions in the event of fraud, refunds or any other restitution of funds to a consumer. This early termination fee enables the merchant account processor to offset some of these costs in the event they can't get financial recourse from the merchant.
There are many different fees associated with merchant accounts and most of them are relatively straightforward. A little education can go a long way in making sure that you are getting a good deal when processing credit cards. The key is to work with a good merchant account service provider who has integrity and who you can trust to be honest about the fees associated with the account.
In addition to articles like this Brian Armstrong also has a website dedicated to
accepting credit cards online. You can find some of the recent videos that Brian has also done about this topic on
YouTube. Brian specializes in internet business and processing payments online. You can reach him via his website MerchantHotline.com