There are a handful of fees that usually aren’t explained to you when you first sign up for a merchant account. This isn’t always the fault of the salesperson or account specialist you work with because you don’t know what questions to ask and they don’t always volunteer these fees assuming you’ll ask when you see the pricelist on the contract. With each application that you’ll sign as a merchant, all of the fees should be listed and sometimes it’s up to you to make sure you question what they are. Here are a few of those fees that you may not know about that should be explained.
The monthly minimum is usually a $25 monthly fee based on the discount rate. What this means is that if you have this monthly minimum fee on your account, you’ll usually either pay $25 or the total discount fees, whichever is higher. This means that if you have an average discount rate of 2.5%, you’ll need to process $1000 per month gross volume in order to have this fee “covered”. If you process less than this, your effective rate instead of being 2.5% will be higher. This isn’t a bad thing necessarily, but if you are an internet business and it is taking you a little longer to get ramped up, this may be a fee worth trying to eliminate.
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.
When you submit transactions, they are usually batched together daily and submitted all at the same time. This “batch” of transactions is assessed a batch header fee which is usually around $.25 per batch. Consider this more of a daily processing fee. Every day you process transactions, you’re assessed a “batch header” fee. Usually your internet gateway account or your credit card terminal will batch these transactions automatically daily. If this isn’t the case, you can reprogram your terminal to do this or enable it within your gateway account.
Address verification system or AVS is a fee that is attached to each transaction where the billing address (usually the postal code) is used to verify the validity of the card. This fee is usually $.05 per transaction where the avs is used. This is not necessarily a “bad” fee because when you use AVS, your rates are usually lower. In the case of retail, you’ll only use this when you need to key in a transaction. For internet accounts, you’ll use this usually all the time. This also helps you as a merchant have confidence in the transaction as well.
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.
Merchant accounts can be very expensive if you don’t know the right questions to ask. They can also simply provide a valuable service for a fair price. This author hopes you’ll find these pricing components useful when determining the overall cost of your merchant account and empower you to negotiate a fair price.