A Complete List of Merchant Account Fees to Watch Out For

Paying merchant services fees is unavoidable when you have a merchant account and accept credit cards from customers. But some merchant providers go way beyond the standard transaction fees and impose an array of add-on and hidden costs that can be downright perplexing. The following are just a few of the fees to watch out for when comparing your merchant services options.

Credit Card Processing Fees for Business Owners

With every card transaction—whether in person, by phone or online—there are two fees that credit card processors will always impose. These are the “interchange fee” and the “assessment fee.” Together, these fees make up what is known as the “wholesale fee.” Your aim as a merchant is to pay as close to the wholesale fee as possible.

Interchange Fee

The interchange fee is the amount the customer’s bank (“card-issuing bank”) charges the merchant’s bank (“acquiring bank”) for processing their cardholder’s card. This fee is non-negotiable and is typically composed of a fixed transaction fee plus a percentage of the transaction amount and varies according to the risk of the transaction.

To calculate the risk of any given transaction, the financial institution or card association will take several factors into account:

• The type of card used (debit, credit, rewards)
• How the purchase was made (in person, by phone, online)
• The card issuer (Mastercard, Visa, AMEX, Discover, and other major credit card companies)
• The identity of the card owner (individual, business)
• The industry, type of business, and product type (often indicated by a merchant category code)
• The size and processing volume of your business
• The size of the transaction

With so many potential factors, there are hundreds of possible interchange rates, and it’s impossible to know beforehand exactly how much the transaction will cost. Generally, the interchange rate for a given transaction will fall in the range of 1-3% and is charged even if the transaction is declined.

Assessment Fee

On top of the interchange fee from the bank, each card brand also charges a small network fee to cover their operations and fraud prevention activities. These types of fees are much lower than interchange fees—your average credit card processing provider will charge between 0.13% and 0.15%. These fees, like interchange fees, are non-negotiable and vary according to the transaction type. You can view the current assessment fee rates by looking up each card network’s website.

Incidental Card-Processing Fees

In addition to all of the above, you might be charged other once-off fees for situations that arise in a given transaction. Some of the most common incidental fees include:

• Batch fee: This may apply when you put through multiple transactions at once.

• Chargeback fee: If a customer initiates a chargeback, you will be charged a fee.

• PIN debit transaction fee: This is unique from standard credit card transaction fees. You may be charged for debit card payments that require the customer to enter their PIN for card present transactions. If you’re an ecommerce business that doesn’t deal with card readers, you won’t have to deal with this one as much.

• Retrieval request fee: This applies if a customer asks their card-issuing bank to investigate a transaction on their statement.

• Voice authorisation fee: This fee is for transactions that require you to make a call to authorise the transaction.

• Monthly minimum fee: Your payment processor may charge an extra fee if your total monthly sales don’t reach the contractual monthly minimums for your account.

The above list of fees includes the most common incidentals you may encounter, but other fees are possible as well.

Merchant Account Fees

On top of the interchange and assessment fees, you will also pay fees for merchant services. This applies whether you use a merchant aggregator like PayPal or Square or a dedicated merchant account provider.

There are three primary fee structures that payment processors (including aggregators and merchant account providers) use to generate income. The three types of pricing models are markups, monthly subscriptions, and tiered pricing.

Interchange-Plus with Markups

Markups are most common with an interchange-plus pricing model. In this pricing method, you pay the wholesale fee (interchange and assessment) and merchant payment provider markup that is a fixed percentage of every transaction. A typical markup rate can vary from 0.25% to 2.75% and is typically lower if you pay monthly account fees and/or have a long-term contract with your merchant services provider.

What You Need to Know About Markups

While this pricing method is the least predictable and looks the most complicated on a monthly merchant statement, it’s also the most transparent and cost-effective approach—you only pay for what you use. Merchant account providers don’t always mention this pricing method up front, so be sure to ask about it when comparing the options.

Monthly Subscription

Subscription fees for merchant services are much more common than they used to be. In this pricing model, you pay a small monthly or annual subscription in exchange for a suite of services and a lower markup. Services that you can expect to receive when paying a monthly subscription include:

• Streamlined interface integration
• The ability to customise your checkout
• Advanced security and encryption features
• Advanced chargeback protection features
• Adjustable fraud scrub settings
• On-demand sales reports and analytics
• Global payment options
• 24/7 customer support

What You Need to Know about Subscriptions

As the payment processor receives more regular funds, they are usually able to offer a lower markup percentage if you have a subscription. For example, you could end up paying 0.05% rather than 1% or more. This can represent significant savings over time—particularly for companies with a high volume of sales.

Tiered Pricing

Tiered pricing is the most common pricing model when it comes to fees for merchant services. Unfortunately, it’s also the most expensive for merchants. Rather than charge you the (highly variable) interchange rate, assessment, plus markup, tiered pricing bundles the possible interchange into groups and charges the highest rate in that “tier.”

In a tiered pricing model, a transaction will be listed as “qualified”, “mid-qualified” or “non-qualified,” with other similar descriptors depending on how many tiers your pricing model includes. “Qualified” transactions are generally those that are lowest in risk, and non-qualified transactions include all higher-risk transactions, such as online sales, subscription payments, and purchases made within certain industries. That’s why the qualified rate is typically much lower.

What You Need to Know About Tiered Pricing

While it might look simpler on a monthly merchant statement, tiered pricing inevitably causes typical merchants to pay far more than they need to. E-commerce merchants, for example, will generally end up paying the highest possible fee—and the payment processor keeps the rest. Before entering into an agreement with a payment processor, ask exactly what is included in each tier and whether you can opt for interchange-plus.

Flat-Rate Pricing

Flat-rate fees for merchant services are typical for merchant aggregators like PayPal, Square and Stripe. Rather than charging a monthly service fee or the wholesale fee plus markup, merchant aggregators usually offer a fixed rate for processing online transactions. This fixed rate is made up of a small transaction fee plus a percentage of the sale.

Because aggregators need to make sure that they are covering all possible costs for credit card transactions (including high-risk credit card payments and chargebacks), their rates are usually similar to the most expensive “non-qualified” payment tier.

What You Need to Know About Flat-Rate Pricing

Flat-rate pricing is generally used by small businesses that don’t have the monthly sales volume to justify a subscription. This is especially applicable to seasonal businesses and hobbyists like craftspeople and bloggers.

However, for an established business, flat-rate fees for merchant services mean that you’re missing out on significant income from lower-risk transactions like debit card transactions and would be better off changing to an interchange-plus or subscription pricing method.

Additional Fees for Merchant Services

When you utilise the services of a dedicated merchant account (as opposed to a merchant aggregator), you will usually pay several other small fees to cover the services provided by the company. These fees are usually higher for “high-risk” merchant accounts to cover any potential problems.

Application Fee

Opening a merchant account for payment card processing can be a highly cost-effective move for established businesses of all sizes. When you apply for a new account, you might be asked to pay a one-time fee to cover the administrative costs associated with account setup and software integration.

The amount that you can expect to pay upon application varies. In some cases, the application is free. In others, you can expect to pay up to €300 to open an account. Be sure to ask about application fees before signing up, and ask whether this fee is refundable.

PCI Compliance Fee

When you sign up with a dedicated merchant service provider, the provider takes over the responsibility for maintaining PCI compliance in the payment gateway. This is a complex and ongoing process that covers everything from firewalls to documentation.

To cover the costs associated with PCI compliance, merchant service providers will charge either a monthly fee or an annual fee. Considering that the average cost of a security breach is in the tens of thousands, this is a relatively small amount to pay.

Monthly or Annual Subscription Fee

Your monthly or annual merchant services fee is what keeps your merchant service provider running. This may or may not include PCI compliance, the payment gateway, the statement fee, and any other applicable fees.

In some cases, you may be able to negotiate a lower subscription fee or markup percentage with your provider as long as your monthly sales volume meets a certain threshold. Failing to meet this threshold may result in additional fees.

Statement Fee

Your monthly merchant statement contains important information about your transactions and helps you keep track of your effective rate for the month. In this day and age, merchant statements are often issued digitally, although some companies issue both digital and physical credit card statements.

The purpose of a merchant statement is to cover printing and mailing costs. Digital statements are usually free. To save money, ask if you can receive your monthly merchant statement digitally rather than having it printed and mailed to your address.

Early Termination Fee

Dedicated merchant accounts are able to offer low merchant service fees thanks to the monthly subscriptions that are paid by their members. In order to secure the necessary funds, merchant service providers will often work on a contract basis, with many contracts lasting three years or more.

If you decide to terminate your contract early because you’ve gone out of business or decided to change providers, you can expect to pay an early termination fee. Just like the application fee, this is a one-time payment that offsets the loss of continuous business.

Find the Best Ecommerce Solutions for Your Business Type

This list of merchant service fees for business accounts might seem overwhelming, but it’s part and parcel of running a business. Fortunately, understanding each fee and why it is charged can help you to streamline your operations and keep a higher percentage of each sale.

When shopping around for the best merchant services provider, don’t be afraid to ask questions and negotiate a better deal for online payments. For large businesses, it’s often possible to reduce per-transaction markups to a minimum.

In the end, you want a merchant services provider with transparent pricing that gives you excellent value for your money and helps your business to function at its best.