Payments Detailed

The three types of fees

Transactional

Interchange Reimbursement Fees and Assessments: These are the fees the card-issuing banks and the credit card associations charge for each transaction. They are the largest expense merchants pay per sale and per month.

  • Interchange fees typically consist of a percentage of each transaction accompanied by a flat per transaction fee (2.10% + .10).
  • Assessments are typically based on a percentage of the total transaction volume for the month.
  • Each card association publishes their interchange and assessment fees online. These are the basic rates.
  • Price Quote Example:
    • On an interchange-plus pricing structure, your processor will quote you something like (.25% + .10). That is their markup. That is the amount that they will add to your basic rates.
    • If you’re on a tiered pricing plan, you’ll get a quote with the Qualified, Mid-Qualified, and Non-Qualified rates. Those quotes have the margin baked right into the quote, thus making it more difficult to tell what the processor’s margin is.

Flat Fees

Annual Fees: These are fees charged every year to cover the basic use of a provider’s services. This is not a commonly accepted charge, so be sure to consider it in your comparison and negotiate this one.

Early Termination Fees: As you might expect, a fee is charged if you cancel your contract early. This fee will be detailed in your signed contract but tends to be glossed over or misrepresented in the initial sales stage. Be sure to fully understand your commitment or avoid entirely when possible.

IRS Reporting Fees: A fee charged by some merchant account providers for reporting transaction information to the IRS (1099K). This can be considered a normal fee, but you can still negotiate as it is an administrative expense.

Monthly Fees: These fees are charged to pay for call center costs (AKA, your customer support). If you have low volume are you going to require much support?

Monthly Minimum Fees: These are fees charged to merchants who do not reach a certain volume total for the month or year. The minimums will vary by provider, but most of them are around $50,000 a year. This fee is not charged by some providers- be sure to ask.

Network Fees: The card networks charge certain non-negotiable fees that are passed through to the merchant, such as the Visa FANF (Fixed Acquirer Network Fee). This fee does not generate profits for your provider. The amount can vary month to month, but is typically not more than a few dollars. Don’t spend time trying to negotiate it.

Online Reporting Fees: These are charged to merchants who choose online statements.

Payment Gateway Fees: These are similar to terminal fees, but they are applied to e-commerce businesses instead. Note: some processors have in-house payment gateways that are free of charge.

PCI Fees: These are fees paid to the Payment Card Industry, either for non-compliance or compliance.

  • In the case of non-compliance, you must pay because your business is not upholding PCI standards, which could cost you even more money in the long run The annual study, conducted by Ponemon Institute and sponsored by IBM Security, reveals that the average cost of a data breach in the U.S. has hit an all time high at $7.35 million, a 5% increase compared to last year. (For more detailed information on the average cost of a merchant breach, click here).
  • In the case of compliance, you may pay the merchant account provider to assist with your compliance. HOWEVER, it is always your responsibility to ensure you are are constantly in compliance. Read more about PCI merchant compliance.

Statement Fees: These are fees charged to cover printing and mailing costs for credit card statements. Some merchants bypass these costs by using electronic bill statements, but others pay as much as $15 a month for miscellaneous processing costs.

Equipment Fees: These are charged to merchants who have physical stores and are using a stand-alone terminal to read a customer’s card.

  • Some providers try to lock merchants into terminal leases. You need to evaluate this option carefully. Consider buying your machine outright for a low one-time fee. This can save thousands of dollars in the long-run. Note: be sure to find out if your terminal can be reprogrammed to use with another processor or if it is locked by your processors. It will do you no good to own a terminal you can’t use in the future, should you switch processors.

Incidental Fees

Address Verification Service (AVS): If you have an e-commerce or telephone order business, you need to be aware of the AVS fee. It will be charged on every single transaction. When calculating your estimated monthly fees, be sure to include this cost in every transaction. For retail businesses that occasionally key-in card information, you don’t need to worry about it as much.

Voice Authorization Fee (VAF): Every now and then, you may need to call a toll-free number in order to verify certain information before a transaction is authorized. While you will be charged a small fee, this shouldn’t occur too often.

Retrieval Request Fee: Every time a customer initiates a dispute on a charge from your business, it sets the chargeback protocol in motion. This retrieval request is the first step. The fee covers any expense related to the retrieval request.

Chargeback Fee: After the retrieval request, the actual chargeback may occur depending on the circumstances. If it does, expect another fee on top of losing the money from the sale. For ways to avoid chargebacks, click here.

Batch Fee: Every time you submit a batch of transactions, a batch fee (or batch header) is charged. It only happens once or twice a day, so don’t worry too much about an extra dime or two.

Non-Sufficient Funds (NSF) Fee: If you don’t have enough funds in your bank account to cover your merchant account expenses, you will be assessed a NSF (non-sufficient funds) fee. Be sure that you are clear on when your merchant fees will be debited by your processor, as you may also have payroll or other operating expenses coming out of the same bank account.

Case Study

Clio

If you are in a (B2B) business to business environment, review the Clio case to see how payments increased their customer satisfaction.

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