Swipesum details all you need to know about merchant account fees! Find out more about merchant service fees and merchant account rates.
Does it feel like you're spending too much on merchant fees? Swipesum helps businesses just like yours save money by delivering customized payment solutions. Our expert team of payments specialists will help you:
- Find the best combination of payment tools and tech for your unique needs.
- Reduce the cost of your payment processing arrangement by negotiating with providers on your behalf.
- Audit your monthly statement with our proprietary software for ongoing savings.
- Provide continuing payments support so you can focus on the core needs of your business.
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What Are Merchant Fees?
Merchant services fees are charges you pay whenever a customer uses a card to make a purchase from your business. These fees are part of the cost of payment processing services. Merchant service fees include transaction fees, account fees, and incidental fees, which can significantly impact a business owner’s finances. The fee amount can vary based on the providers, banks, card issuers, and type of payment involved.
Merchant services fees explained in the simplest way possible: Payment processing providers need to pay for the costs of operating their businesses. And, of course, they want to make a profit along with addressing those costs. Credit card processing fees, which are a major component of these costs, can significantly impact a business’s bottom line. Interchange fees, which are set by the card networks, are a significant part of these credit card processing fees.
Some merchant account providers charge a fixed fee per transaction without charging any additional fees. Others charge a little more than what the credit card issuer would charge directly. Some providers have a tiered pricing system that depends on card type and other variables, including whether the transaction involves a credit or debit card.
No matter the provider you work with, you can’t avoid some kind of cost to your business. From Quickbooks merchant services fees to Chase merchant services fees, they’re simply inescapable.
While you can’t cancel out all of these fees, you can find the right provider to reduce their impact on your finances. Using the option that’s best for your business is crucial for limiting unnecessary costs.
The best provider depends on the specifics of your business. Key factors include everything from the most common types of card transactions you process to overall transaction volume and more. That’s why Swipesum builds a customized payments strategy for each and every one of our clients.
What Are the 3 Different Types of Merchant Account Fee Pricing?
There are three different types of pricing models that influence what fee you will be charged. Accepting debit card payments can lead to lower transaction fees compared to credit card processing, which can help minimize overall processing costs. Additionally, understanding the discount rate associated with each transaction can further help in managing and reducing these costs.
Flat-Rate Pricing Model
A flat-rate pricing model involves the merchant account provider charging you either:
- A flat rate fee for each transaction,
- A fixed percentage on each transaction,
- Or, a mixture of the two each time a card is swiped.
The fixed percentage is usually between 1.75% - 3% and includes a per-transaction fee. This pricing model is the best for small businesses because it’s very transparent. Additionally, the 'qualified rate' is often used to describe the lowest possible rate for transactions that meet certain criteria.
Interchange Pricing Model
AnInterchangepricing model (usually calledInterchangePlus or Cost Plus) describes how companies like Visa and MasterCard charge a processing fee for each transaction. This is called the rate of interchange.
Some merchant account providers will mark this up a little and charge you extra. Luckily,SwipeSumcan helpdecrease these unnecessary feesfor you.
Tiered Pricing
Finally, tiered pricing has a more diverse array of cost structures, and it's the least transparent. Tiered pricing depends on the type of card being used — whether it's credit, debit, or prepaid. It also includes a bunch of different costs that, while they can be beneficial, might not even show up on your statements.
It can also depend on how you accepted the card. Was it present or not, and was it keyed in or swiped? Overall, this pricing model is the most complicated and the least worth your time, especially if you run a small business.
Universal Merchant Account Fees
No matter the pricing model you use, there are account fees that will always show up on your statements. These fees include the following:
PCI compliance fee is another common charge that ensures your business adheres to the Payment Card Industry Data Security Standards.
Early termination fees are another important consideration. These fees typically apply when businesses try to close their accounts before the end of a long-term contract, leading to unexpected charges.
Authorization Fees
The authorization fee is charged every time a card is swiped, even if the card is declined. When any transaction is processed, information is sent back and forth between the acquiring bank (your business account) and the issuing bank (Visa, MasterCard, etc.).
Transaction Fees
Merchant service providers use transaction fees to describe the per transaction fee they collect. Depending on your plan, it may also include the percentage applied or authorization fee.
Assessment Fees
Assessment fees are charged by the cardmember associations for various expenses including fraud prevention and network operations. Merchant service providers often pass them along to their customers.
Rates per transaction are typically around:
- Amex: 0.15%
- Discover: 0.13%
- MasterCard: 0.13%
- Visa: 0.14%
It is important to note that for flat rate pricing structures, most of the time the only thing on the statement is the transaction and authorization fee. For example, Stripe is 2.9% + $0.30, and they do not have any other fees.
Scheduled Fees
There are also “flat” merchant account fees. While these are fixed or scheduled fees, they can vary widely by amount. Common scheduled merchant account fees include:
Monthly or Annual Fee:Some providers simply charge a percentage of your transactional revenue for a fee, while others charge monthly. A monthly fee provides a more predictable cost structure, appealing to businesses looking to save money. That depends on who you work with.
Monthly Minimum Fee:If a processor charges on revenue and you don’t reach a certain minimum, they may charge you a fee for not reaching this floor.
Processing Commitment Fee:Like the monthly minimum fee, if you fail to transact a certain number of times per month, you might be charged a processing commitment fee.
Statement Fee:This fee is charged to cover the printing and mailing costs for credit card statements if you don’t receive them virtually.
Payment Gateway Fee:Some merchant service providers have their ownpayment gatewaysor third-party services. Your MSP may or may not charge for this. The payment gateway fee can vary depending on the provider.
Situational Merchant Account Fees
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These are also known as incidental fees. They are oftentimes included in the fine print of your contract. Common situational merchant account fees include:
PIN Debit Transaction Fee:This can occur if you accept a transaction that requires PIN verification.
Address Verification System Fee:This can occur if you have to verify a user’s address for security reasons. It usually costs $0.01 per transaction.
Retrieval Request Fee:If a customer doesn’t recognize a transaction and they flag it, you’ll be charged. That covers the cost of the issuing bank collecting receipts and another evidence to corroborate the transaction. This fee is usually small.
Chargeback Fee:When a customer wants to return something, you’ll be charged this fee. Remember, the chargeback fee is in addition to the fee that accompanies processing a transaction.
Batch Fee:You can be charged a flat fee for settling a lot of transactions at once.
Cancellation or Termination Fee:You can be charged a fee for terminating your agreement early. This is often referred to as an early termination fee and can lock merchants into unfavorable agreements, impacting their ability to switch providers.
Voice Authorization Fee:If you have to make a call in order to authorize a transaction, you can be charged a fee.
PCI Non-Validation Fee:This fee applies when you aren’t PCI-compliant and/or your system isn’t sending along that PCI verification to the participating banks in a transaction.
Application/Setup Fee:Some MSPs charge you to get set up.
Some unethical merchants will include even more hidden fees than the ones listed above. It’s important to carefully read your terms and sign with a provider you trust.
If you’re thinking “It shouldn’t have to be like this!”, we agree. Since no one can simply change the way the market works, we’re here to help you find an MSP that works for you.
What is a Batch Fee in Payment Processing?
A batch fee is a charge imposed by payment processors when multiple transactions are grouped together and submitted for settlement at the end of the business day. This process, known as batching, helps ensure that all credit card transactions from a specific period are finalized and transferred into the merchant’s bank account. While the cost of a batch fee is typically low, usually ranging between $0.10 to $0.30 per batch, it’s important to note that this fee is charged every time you submit a batch, regardless of the number of transactions. At Swipesum, we always recommend reviewing your processing agreement to ensure you’re not being overcharged on batch fees, especially if you run multiple batches throughout the day. Properly managing batching times can help minimize these costs.
What is a PIN Debit Transaction Fee, and What Are the Costs?
A PIN debit transaction fee is a cost incurred when a customer uses a debit card and enters their PIN for authentication, instead of signing for the transaction. PIN debit transactions are often more secure and less prone to fraud, which is why they're typically priced lower than credit card transactions. The cost of a PIN debit transaction typically includes a fixed fee, usually around $0.20 to $0.75 per transaction, plus a small percentage, usually around 0.5%. While these fees are generally lower than credit card processing fees, they can add up quickly for businesses with high transaction volumes. At Swipesum, we help merchants optimize their payment processing setup by evaluating the mix of card types and transaction methods to ensure you’re always paying the lowest possible fees.
Red Flag Fees
Some fees aren’t anything more than a way to get extra money out of your business. Hidden fees can often be buried in the fine print, making them hard to spot. We can help with identifying these red flag merchant account fees. When a provider is otherwise a good fit for your business, we’ll work to negotiate these fees down on your behalf. Different payment processors can charge merchants differently based on transaction types and risk levels, so choosing a reputable payment processor is crucial to ensure compliance and minimize fees.
“Creative” Processor Fees:Sometimes processors make up their own fees. Ridiculous, we know.
Jacked-Up Assessment Fees:It doesn’t hurt to double-check that you’re being charged what the card association (Visa, MasterCard, etc.) actually charges.
Fluctuating Discount Rates: Some companies may inflate their discount rates until you question them. Many companies will say that their costs went up, but they might not tell you if you don’t ask.
ERF/Integrity Fees:These fees mean you’re doing something wrong when processing a payment, like swiping a chip card.
What Makes Merchant Services Fees So Complicated?
The major factor complicating merchant account fees is each fee is designed for its own purposes, which are different from other charges, causing you to pay numerous additional charges on your account statement. Merchant services fees are also generally confusing on purpose to hide margin. Another problem that is complicated is how many transaction fees you are charged on your merchant account and other fees you charge on credit cards (such as MasterCard and Visa). The processor simply collects the charge and sends it to an authorized entity. This type of fee is non-negotiable during registration.
What factors determine the amount of merchant account fees?
A number of variables influence the cost and quality of credit and debit card transactions, but with higher transaction amounts and processing volume the fees should decrease. These include the type of cards used, the payment processors, the acquisition banks, the clients' banks whether it's a digital or in-person transaction and the card company that issued the card to its customers, all discount rates applied by the payment processing company, and whether it applies to the card issued by
Negotiate For Lower Fees
You can negotiate all fees when shopping for a merchant account. Note that wholesale fees passed on to another company or entity are no longer negotiable and all markup fees imposed directly on your provider are fair game. Some of the most reliable companies will usually waive the late termination fee for the duration of the contract. Monthly minimums may be reduced in negotiations as well.
To significantly lower your processing costs, and reduce them over time, speak with a payments consultant and regularly audit your merchant processing statements.
Application or Account Setup Fees
While it isn't currently widespread, some providers are still charged a one-time fee for processing your merchant application and perhaps another fee for the setup of the accounts when approved. This is straight commission for the sales rep, and is a $0 cost to a payment processing company. Avoid providers that charge such fees. Except in cases of high-risk businesses where additional account approval may justify paying setup costs. Note: if you're not receptive to bad credit, your account may still have an invalid credit history.
Frequently Asked Questions
What is the average merchant account fee?
The average merchant account fees typically range between 1.5% and 3.5% per transaction, depending on factors like your industry, the type of card used, and the pricing model. For example, credit card transactions may have higher fees compared to debit cards, and card-not-present transactions (like online sales) usually cost more than in-person transactions. At Swipesum, we analyze your unique business profile to ensure you're getting the most competitive rates and aren't paying unnecessary fees.
What is an interchange fee?
Interchange fees are charged by the cardholder’s issuing bank for processing transactions, and they are generally non-negotiable. These fees are passed through to the merchant and can vary depending on the type of card and transaction. However, at Swipesum, we help you identify ways to optimize your payment setup to reduce downgrades and save on these fees.
What is a monthly minimum fee for merchant accounts?
Monthly minimum fees are charges imposed if your transaction volume doesn’t meet a predetermined threshold, meaning you pay the difference. It’s crucial to review your contract to avoid unexpected costs. Swipesum helps merchants negotiate contracts to ensure you only pay for what you use.
How can I reduce my merchant account fees?
You can reduce fees by selecting the right pricing model, avoiding interchange downgrades, and negotiating better rates with your provider. At Swipesum, we analyze your transactions and work to lower your costs, whether through renegotiating your contract or optimizing your payment setup. Our goal is to help you keep more of your revenue.
Are there hidden fees I should be aware of?
Yes, many processors hide fees like PCI non-compliance, batch fees, and statement fees. It’s important to read the fine print and consult with a payments expert. Swipesum offers a comprehensive fee audit to ensure you're not paying more than necessary.
What are chargeback fees and how can I avoid them?
Chargeback fees are penalties imposed when a customer disputes a transaction and the processor reverses the charge. You can minimize chargebacks by improving transaction transparency, using proper fraud prevention tools, and responding quickly to disputes. Swipesum advises merchants on best practices to reduce chargeback risks and negotiate lower fees with providers.
What are PCI compliance fees, and are they mandatory?
PCI compliance fees ensure that your business adheres to payment security standards, and they are mandatory for maintaining a secure payment environment. Non-compliance can result in penalties and higher fees. At Swipesum, we guide you through PCI compliance, ensuring you meet the standards without incurring excessive fees.
What is the impact of merchant account fees on small businesses?
For small businesses, merchant account fees can cut into already thin profit margins, especially if they're not optimized. They're known as the second highest operating expense, behind payroll. It's critical to ensure you're only paying for necessary services and not hidden fees. Swipesum specializes in helping small businesses reduce costs and improve profitability through tailored payment solutions.
How do I compare merchant account fees between providers?
To compare fees, you need to look at the total cost of ownership, including transaction fees, monthly charges, and potential hidden costs like PCI fees or early termination penalties. It is best to compare providers using the same pricing model. Swipesum’s consulting service helps you perform a comprehensive comparison, ensuring you find the best provider for your needs. We take the guesswork out of selecting the right payment partner.
What are gateway fees, and how do they relate to my merchant account?
Gateway fees are charges for using a payment gateway that connects your website to the payment processor for online transactions, this is a flat rate and not a percentage of the transaction. These fees are separate from your merchant account fees but can add up. Swipesum evaluates gateway options to ensure you're getting the most cost-effective and efficient solution for your online payments.
Do I need to pay for terminal or equipment rental fees?
Many providers charge monthly rental fees for terminals or other payment equipment, but purchasing your own equipment upfront can often save money in the long run. Do not lease credit card processing terminals. Swipesum helps merchants weigh the costs and benefits of leasing vs. buying, ensuring you’re not overpaying for your equipment needs. We’ll negotiate to get you the best deal.
What are the consequences of early termination fees?
Early termination fees are penalties for canceling a merchant account contract before the agreed-upon term ends, and they're typically not enforcable. Seek legal advice when dealing with this issue, or leverage ours. These fees can be substantial, so it's important to understand the terms before signing. At Swipesum, we help you negotiate contracts that avoid unnecessary penalties, offering flexibility in case your business needs change.
How often do merchant account fees change, and can I renegotiate?
Merchant account fees can fluctuate based on interchange updates, contract renewals, or changes in your transaction volume. Typically, we see payment processing rate hikes from payment processors annually and they occur at the beginning of each year in Q1. It's always possible to renegotiate, especially if your business grows or you’re facing better offers from competitors. Swipesum constantly monitors market rates and advocates for our clients to get the best possible deal on their fees.
Is merchant account fees an expense?
Yes, in accounting, merchant account fees and the fees associated with accepting payments are classified as an expense. These costs are typically recorded as part of "Operating Expenses" or more specifically as "Payment Processing Fees" on the income statement. Since they are directly related to conducting business and accepting payments from customers, they reduce the overall net income of the business. Keeping track of these expenses is essential for financial reporting and tax purposes, and at Swipesum, we help businesses manage and minimize these costs for better financial efficiency.
Does a merchant account cost money?
There should be no application fee for a merchant account, or cost to get started processing payments. Typically a provider charges your transactional revenue for a fee, while others pay monthly. It varies depending on what company they work with and how they run their business.
Conclusion
In conclusion, the merchant account fees you've been charged aren't set in stone.
If you're not being charged a flat rate, then your fees are up for negotiation with every statement you receive. Sometimes, even flat-rate processors will negotiate with you if you have enough volume.
When you negotiate, your goal is to lower either the credit card processing percentage or reduce the markup on the interchange-plus plan. Some providers may bring both down.
SwipeSum has years of experience negotiating to support businesses in this ongoing effort. We have also developed our own software, calledStaitment, that can automatically detect any unnecessary fees and save you money.
One more thing to remember about merchant services fees: Your price may vary based on how you process payments. Your payment gateway is either a point of sales system in the store, a mobile phone reader, or an online portal. Fees vary based on the risk of fraud posed by each type of gateway, with online being the riskiest and therefore the priciest.
Pick your merchant services provider carefully – you don't want unnecessary costs when you can save money! Remember, you don't have to take this task on alone. With Swipesum, you have expert support on your side throughout the process.
