How to Understand Credit Card Processing Fees?
Transactional Fees
The biggest cost of operating a merchant account, come in two forms:
- percentages (e.g., 2.19%, 0.25%)
- per-item dollar amounts (e.g., $0.20, $0.0195).
Often, both forms are charged on a given transaction.
Scheduled Fees
Vary by name, value, and applicability, some of them will show up on your monthly statements. Always charged.
- Monthly fees usually range from $5 to $15. It may be higher if it includes PCI compliance and gateway fees.
- PCI compliance is $100 per year, on average, though some companies may prorate it and charge it monthly, sometimes baked into the monthly fee.
- Gateway fees vary, depending on the payment gateway you use. Most are charged monthly, though some also charge a small per-transaction fee.
- Various network fees such as MasterCard’s Merchant Location Fee and Visa’s Fixed Acquirer Network Fee (FANF) that the processor passes on to you as either monthly or annual fees.
Incidental Fees
Only appear per occurrence (when a chargeback occurs, for instance). Some months have not any chargebacks. Chargeback fees usually cost $15 or $20 per incident, but may be as much as $45.
Other common fees
- Batch fees are nominal, daily fees that you pay when you close out the day’s sales, costing 10 to 30 cents (usually the same amount as your per-transaction fee).
- Address Verification Service (AVS) fees usually cost a few cents per-transaction when you use this anti-fraud tool to verify the address and ZIP code of the cardholder.
- Voice authorization is another anti-fraud tool with a small per-use fee. It’s rarely required, but you’re charged for each occurrence.
- PCI non-compliance is an expensive monthly fee charged if you fail to establish and maintain your PCI compliance.
- Non-Sufficient Funds (NSF) fee is charged if you don’t have enough money in your business bank account to pay the fees you owe the processor.
Fees to avoid
- Cancellation fees
- Club or membership fees
- Fees to pay for what the contract vaguely defines as “additional services”
The financial “middlemen”
- Credit card associations: the companies that create credit cards, like Visa, MasterCard, and American Express.
- Credit card issuing banks: the financial institutions that issue the credit cards, like Chase, Citi, and Wells Fargo. Some card associations take on the role of a bank as well, developing and issuing their own cards. Examples include Discover and American Express.
- Credit card processors: also known as acquiring banks or just acquirers. They pass batch information and authorization requests along so that merchants can complete transactions in their businesses. A merchant may encounter several acquirers for one transaction – one that creates monthly statements, one that handles technical support, and one that issues money to a bank account.
- Merchant account providers: the companies that manage credit card processing (e.g., sales, support, etc.), usually through the help of an acquirer. They could be financial institutions, independent sales organizations, or double-duty acquirers, depending on the situation.
- Payment gateways: special portals that route transactions to an acquirer, usually in the case of an online shopping cart.
Sources: merchantmaverick.com, business.com
