Merchant Services Series – The Cost of Credit Card Processing Solutions

Understanding the cost of credit card processing solutions is important for all credit card processing merchants. The merchant service industry has developed over the years, a unique system and language. This language is bandied about by merchant service salespeople and too many credit card processing merchants nod knowingly either in an effort to avoid appearing unaware, or to expedite their escape from the sales pitch. Unfortunately, not understanding the terms can cost credit card processing merchants dearly.

The merchant fees associated with processing and the terms describing those fees are common among most processors. The terms may have slightly different meanings depending on the processor. Some processors prefer to use sweet sounding or powerful words to denote a cost, but the cost is still a cost by any name to the credit card processing merchants. Credit card processing merchants should make themselves aware of the following typical costs and terms for those costs used by the top credit card processing companies.

The discounts rate is the fee that a merchant’s bank (the “acquiring bank”) charges the merchant. The discount rate includes the interchange rate which the “acquiring bank” pays a customer’s bank (the “issuing bank”) when merchants accept cards. In a transaction, the purchaser’s bank receives the interchange fee from the seller’s bank. The purchaser’s bank then pays the seller’s bank and processor the amount of the transaction. The discount rate plus any transaction fees is then collected from the merchant by the acquiring bank.

Interchange-plus pricing is too often an uncommon rate alternative offered to merchants. However, it may be the wisest choice of pricing available to aware and knowledgeable merchants. This rate is simply put, a fixed markup plus the actual processing charges. This equates to actual costs of interchange (cost of processing) plus small fixed profit for the processor. This pricing is far less confusing

The qualified rate is the lowest possible rate paid for credit card transactions by credit card processing merchants. They are charged for regular consumer credit card (non-reward, etc.) transactions that are swiped on-site; a signature is collected, and batched within 24 hours of the transaction. The qualified rate is the percentage rate charged to credit card processing merchants for “standard” transactions. The definition of a “standard” transaction may vary depending on the processor.

The mid-qualified rate is charged for some of those transactions that do not merit the “qualified rate.” This rate is sometimes called the partially qualified or mid-qual rate. Credit card transactions which do not qualify for the “qualified rate” may be keyed in rather than swiped, the batch may not be settled within 24 hours, or the card used is not a standard card, but a rewards, foreign, or business card for example.

The non-qualified rate is applied to all transactions that do not meet qualified or mid-qualified standards. The non-qualified rate is the highest rate charged to credit card processing merchants for credit card transactions. This rate may be applied on the conditions that the card is not swiped, address verification is not sought, rewards, business, foreign etc. cards are used, and the merchant does not settle the batch within 24 hours of the initial transaction.

Merchants who accept credit cards must accept all types of credit cards carrying the brands they agree to accept. In other words, despite the fact that reward cards are charged the higher rates, merchant who accept the standard card for a brand, must accept the non-standard form of that branded card. For example, a merchant who accepts Visa® credit cards, must accept Visa ® reward cards.

There are many types of fees charged by processors and banks that are commonly found on processor statements. Many of these fees are fixed costs within the industry, and are charged across the board to merchants. Many more fees are charged to merchants depending on the size and type of merchant, or more significantly, the whim of the bank and processor’s salespersons. Some charges are assessed every day, every month, some assessed per event, and some are annual fees.

Settlement or “batching” charges occur almost daily. A “batch fee” is charged upon settlement of terminal transactions. In order to minimize transaction fees, merchants should settle their batches within 24 hours after the transaction. For most merchants, this means daily. For other, such as those who sell product at craft fairs, and special events, this could occur less frequently, however their batches should be settled within 24 hours as well. The batch fee is nominal, ranging from $.10 to $.35 per settlement.

Normal monthly fees may have different names, but the charge is fairly standard throughout the payment card processing industry. Monthly minimum fees are charged to merchants as a floor for monthly charges. If the merchant does not earn equal to or more than the monthly minimum, they pay at least the monthly minimum fee. It is the least a merchant will be charged per month for accepting credit cards. Monthly minimums typically run from $15 to $50 per month.

Statement fees are monthly charges, and are exactly like bank statement fees, in that they detail the processing of the month. This includes the total dollar volume, the number of transactions, average ticket amount, among other useful data. Statements fees range from between a flat rate $10 to $25. Many processors offer online data viewing along with monthly statements. Processor frequently charge from $2 to up to $10 for this online service.

There are monthly fees that merchants should simply not pay. Depending on your business, it is probably best to avoid the additional warranty plans for credit card terminals, and rarely is it advisable to lease a terminal and incur long term monthly lease fees.

Gateway fees are normally charged monthly. E-commerce merchants, those using payment gateways, and off-site merchants and service providers, those using wireless gateways are charged for their authorization services by the gateways. These service fees may be charged through their processors on a monthly basis to simplify payment. The monthly fees range from $5 to $100 per month with a per transaction cost of $.05 to $.10.

Retrieval fees, chargeback fees, ACH rejection fees are charged per event, and many times those events can be avoided. Retrieval fees occur when a customer disputes a transaction. Upon complaint a retrieval request is initiated by the card issuing bank. This retrieval request letter demands all sales invoices and documentation of the transaction. This retrieval request is the initiation of the chargeback process. The merchant is charged for the request usually $15.00. Chargeback fees are charged to a merchant by the acquiring bank. The $35 fee is normally charged to the merchant in the case when a chargeback claim by a purchaser is successful. The ACH rejection fees are much like a bounced check fee. They are charged to a merchant when there are non-sufficient funds to cover monthly expenses.

Top credit card processing companies do not charge annual fees, reprogramming, or set-up fees. Many sub-contracting salespeople will tack on these fees, but offer lower interchange rates. Cancellation fee are an acceptable demand by processors, however they should be low and fixed fees, typically $250 to $350. The merchant should be aware of cancellation fees prior to signing a contract with a processor. Avoid acquirers who charge variable cancellation fees. Top credit card processing companies will do everything in their power to satisfy merchants, and avoid cancellation of the merchant service contract.

Topics in Merchant Services: Ways to Accept Credit Card Payments

For businesses that sell products and services to consumers, having multiple credit payment options is essential for building a customer base and maximizing sales, especially when credit is the way most consumers prefer to spend. Accepting credit card payment begins with receiving one or more accounts through a merchant services provider, which will help to determine which options are best for your business. Below, we list four common ways to accept credit card payments via a merchant service provider.

1. Stationary card terminals

Stationary card terminals are ideal for businesses that sell a large volume of goods or services at physical locations, but not for companies that don’t sell their offerings using a traditional store front arrangement, or that sell on a B2B (business to business) basis. Traditional credit accounts facilitated by stationary terminals usually feature low discount rates and high monthly program fees.

2. Mail or telephone order (MOTO)

Accepting payment by mail or telephone allows you to reach customers who prefer to pay by telephone or mail. MOTO accounts have the advantage of not requiring terminal equipment. Unlike traditional accounts facilitated by terminals, they typically feature high discount rates and low monthly fees.

3. E-commerce accounts

When you accept online payment, you open up your business to millions of people that can’t travel to its physical location(s), as wells as people who prefer to shop online with a charge card. E-commerce offers the opportunity to invest in Web based sales as opposed to adding physical locations. E-commerce accounts typically feature medium range discount rates and mid-range to high monthly fees.

4. Wireless accounts

Wireless accounts are ideal for businesses that sell their goods or services in changing locations, such as businesses that accept payment at point of delivery, and businesses that sell at kiosks or tradeshow booths. Some common examples of entities that use wireless accounts are attorney offices, businesses that perform food delivery, and contractors. Wireless accounts typically feature high discount rates and low monthly fees.

Choosing the right account provider

In addition to choosing a provider that offers extensive account options, it’s also important to choose one that’s poised to offer the best overall service quality. To do so, it pays to observe the following tips:

1. Choose a service whose page ranking is high in search results, as companies with high rankings are more visited, and therefore more scrutinized than those with lower rankings.

2. Choose a service that offers 24-hour support via telephone and/or computer.

3. Avoid services whose websites are sub-domains of a larger website, such as a website hosted by Yahoo. Often, such a service is merely a front for extracting fraudulent payments.

4. Choose a provider whose record at the Better Business Bureau is free of unresolved customer complaints.