The Merchant Account Rate (or, What Are All These FEES?!!)

You cannot be careful enough when analyzing the fees associated with your merchant account rate.

It's really amazing to see all the creative charges they come up with.

And the advertising! Talk about fuzzy math! Just how many institutions are there that "have the lowest fees in the industry!"???

Here's a list of some of the more typical fees and charges that go into a merchant account rate:

• Application Fee
• Discount Rate
• Transaction Fee
• Monthly Fee
• Gateway Fee
• Holdback Fee
• Chargeback Fee
• Software/Equipment Rental Fee
• Batch Header Fee
• Address Verification Fee
• Fraud Screening Fee
• Wearing Underwear Fee
• Breathing Fee

Whew! Now that's a list.

Ok then, let's roll up our sleeves and go through each one of these fees affecting your merchant account rate.

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• Application Fee

Also called a setup fee, this is one of those merchant account fees that can vary greatly, ranging from near zero to over $400.

If your application is denied, part or all of the application/setup fee may be refunded.

Always check with the bank or provider BEFORE applying.

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• Discount Rate

This is a fixed percentage taken from every transaction. Expect it to be around 2-3%.

For example, if you transact a $100 order and your discount rate is 2.5%, you will receive $97.50, while your bank/provider will keep the $2.50.

This rate is typically higher for internet merchant accounts due to the greater risk of fraud.

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• Transaction Fee

A flat rate per transaction. Typically 25 to 40 cents per sale.

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• Monthly Fee

This is just what it sounds like and is in addition to the discount rate and transaction fee.

Monthly merchant account fees vary widely and may or may not include statement and customer service fees.

Some will also include gateway and software fees (though this is less common).

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• Gateway Fee

Varies based on which payment gateway is used. Many providers will allow you to choose.

This can be a monthly or per transaction fee.

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• Holdback Fee

A percentage of each sale that is held back to ensure you can cover any chargebacks.

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• Chargeback Fee

A penalty fee charged whenever a cardholder disputes a charge for any reason.

Yep, it's one of those merchant account fees we all hate.

And guess what?

This is in addition to the fact that you'll have to refund the purchase amount (nothing like paying a fee for the privilege of giving your stuff away, huh?)

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• Software/Equipment Fee

A monthly "rent" for software and/or equipment.

FYI: if you operate an online business only, you do not need a swipe terminal so make sure you're not paying for one!

Also, a personal recommendation: Don't lease equipment or software unless you must. Either purchase outright, or make payments toward owning it.

And a reality check: Sometimes, a provider/bank will seemingly give the software away--but typically they will make it back and then some in higher transaction and discount rate merchant account fees. Be wary.

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• Batch Header Fee

One of those small, goofy little merchant account fees. It's associated with the way transactions are "batched" together at the end of the day.

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• Address Verification Fee

A service for credit card fraud protection. Typically a per-transaction fee and, unlike most of the other merchant account fees, this is one I think you should be happy to pay.

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• Fraud Screening Fee

One of the more popular optional merchant account fees. It's a service that attempts (with varying degrees of success) to screen transactions for tell-tale signs of fraud.

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Is this list exhaustive? It may be exhausting to look at, but NO!

There is no end to the fees that make their way into your merchant account rate out there (and you thought the phone companies were bad!).


In addition, there may be a ...

• minimum monthly fee.

If the total amount deducted through the discount rate and transaction fees during a certain billing period doesn't add up to the minimum (which would indicate your transaction volume is low), you will be required to cover the minimum.

Be very, very aware of this and be realistic about your expected volume. 

For example, if your monthly minimum is $20 and the total fees you pay on transactions in a given month is only $15, you'll be required to pay an additional $5 to cover the minimum.

And one more thing to consider...

Some merchant account providers may have you sign a contract for a minimum period of time.

Sometimes the merchant account fees can be outrageous, but to break the contract is to incur a stiff penalty.

MAKE SURE YOU AREN'T GETTING LOCKED INTO A CONTRACT YOU DON'T WANT! READ THE FINE PRINT!

Sorry about all the yelling, but it's a terribly important point.

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