When businesses compare their revenue to the revenue of businesses that offer more payment options, implementing those additional options often becomes a priority. For most businesses, increasing payment options requires contracting with a merchant service, an organization that is backed by a bank and offers a variety of payment processing options. While different services offer different options, they all have one thing in common: account fees. Prior to contracting with a merchant service, a business should understand the fees the service charges and the frequency at which it charges them.
Three types of fees
Most merchant services charge three types of standard merchant services fees: transaction, monthly, and annual fees.
Annual fee. An annual fee is a set fee that is charged for the annual maintenance performed on a merchant’s account. Though it is often the largest single fee a merchant pays, it is usually the least expensive fee on an annual basis. For a small business, an annual fee under $100 is considered favorable.
Monthly fee. A monthly fee is a set amount that is charged (a) for services that support a merchant’s account, or (b) to ensure the merchant service’s profits. An account gateway fee and a statement fee are the standard monthly fees charged for account services. For a small business, a gateway fee of less than $30 and a statement fee of less than $15 are considered favorable.
A “monthly minimum fee” is charged to ensure a merchant service’s profits. Upon signing an account contract, a merchant agrees that, unless it incurs a certain amount of transaction fees in one month, it shall pay the difference between the amount it incurs and the amount it is required to incur. The difference between these two amounts is a monthly minimum fee. For a small business, a monthly minimum fee of $25 or less is considered favorable.
Transaction fee. A transaction fee occurs when an account transaction occurs. In some cases, a transaction fee is a number of fees rolled into one for simplicity’s sake. For a small business, a transaction fee of less than 5% of each transaction is considered favorable.
In addition to charging a “transaction fee” for each transaction, a merchant service also charges a “discount rate” for each transaction. A discount rate is a percentage of each sale that goes toward a collection of charges, assessments, dues, and mark-ups that merchants must pay for accepting credit and debit payments. For a small business, a discount rate under 3% is considered favorable.
Other fees to consider as you compare merchant services fees
Having a merchant account also involves three types of fees that are not charged on an annual, monthly, or transactional basis: batch, chargeback, and early termination fees.
Batch fee. Also known as a batch header, a batch fee occurs when a merchant sends its daily transactions to its processing back for payment, settling its terminal. Most processing banks require “batching” to be completed within a 24-hour cycle, after which time a higher batch fee is charged.
Chargeback fee. A chargeback fee is assessed when a processing bank is responsible for refunding to a business or consumer the amount of a charge transaction that it has already paid to a merchant. A chargeback fee is usually rather small (e.g. $30). But the fines assessed against a merchant’s processing bank for its chargebacks are ultimately visited upon merchant. Once a merchant’s chargebacks surpass roughly 1% of its total dollar processing volume, Card services such as Visa and MasterCard assess fines against its processing bank that can easily reach the six-figure mark.
Early termination fee. As one would expect, an early termination fee is assessed when a merchant terminates its account earlier than its contract allows. An early termination fee is typically comprised of three elements: the monthly statement fees, monthly minimum fees, and the profit a merchant service would have earned had an account run full contract.
At AVP Solutions, we understand business’ need to compare merchant services fees before they choose a service. That’s why we list our fees on our website and answer fee related questions from potential customers. Whether you need your first merchant account, a new account, or to expand upon the accounts you already have, let us put our 25 plus years experience in the merchant account business to work for your business today.