The Basics of Merchant Account Fees

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Merchant accounts are a vital part of e-commerce. They allow online retailers to accept payments from customers without having to overcome the hurdles associated with getting set up with a traditional bank. With that said, merchant accounts also charge fees for their services, and the more functionality a merchant account offers, the more it will cost. Merchant accounts tend to be misunderstood, and processors do several things that can cause end-users to pay unnecessary fees. Merchants looking to reduce expenses will need to understand what it takes for a merchant account company to build its business and seek assistance in understanding how they can best use their accounts.


Different Types of Fee Pricing

Various pricing models impact the fee you will be charged. Here are some different types of fee pricing you may encounter:


Flat-Rate Pricing Model

This is the most common fee pricing model with merchant account companies. The flat-rate pricing model is the easiest to understand and predict, as fees are typically listed on rate tables that a merchant can access through their account portal.


Interchange Pricing Model

This fee is as simple to understand as the coin in your pocket. From the merchant's point of view, they are charged an interchange fee based on how they operate their business. This can result in higher costs for merchants that offer alternative payment methods or the same process in various ways.


Tiered Pricing

This type of fee pricing is very similar to the interchange model in that it is based on how the merchant operates. The difference is that tiered pricing has multiple categories or "tiers" of pricing, with each tier having a different interchange rate.


Universal Merchant Account Fees

There are fees associated with every merchant account, and merchants that do not accept all forms of payment will incur a universal fee – a flat fee simply for being set up with the merchant account. There are various types of merchant account fees.


Authorization Fees

Every time a customer wants to pay for something using their card, there is a fee that the merchant account service provider charges. This covers the cost of providing services like clearing, settlement, and reconciliation. The amount paid varies greatly between processors, and some even hide it in the rates they charge.


Transaction Fees

This is where the money goes and knowing what fees a merchant account provider charges can help you save money. Many processors charge a flat fee for each transaction to cover its clearing, reconciliation, and settlement costs. If you plan on increasing your revenue by implementing new payment methods, later on, make sure that processing costs are factored into the prices.


Assessment Fees

This is the fee that the merchant account service provider will charge for providing their services. The assessment fee may cover equipment, administrative overhead, payment fraud prevention, and more.


Scheduled Fees

There are services that a processor provides which will incur a fee, and these are called scheduled fees. Features such as daily batch processing, authorization of payment cards, and others may require the merchant to pay for additional costs. There are different types of scheduled fees.


Monthly or Annual Fee

This is a flat fee that the merchant account service provider will charge on a specific date or at the end of some period. This is the most accessible fee to predict, and it is one reason why the rates applied to many merchant accounts are relatively low.


Monthly Minimum Fee

This fee is charged monthly if the transaction amount is below a certain threshold.


Processing Commitment Fee

This one-time fee is charged if the merchant fails to keep up with the minimum transaction amount each month.


Statement Fee

This is the cost of printing a statement for each month, which reflects any fees paid.


Payment Gateway Fee

The payment gateway service provider charges a fee for each transaction processed, with the total fees paid as a percentage of the total transaction amount. This fee is set every month.


Fees That Are Red Flags

Specific fees should immediately raise red flags, which should be avoided at all costs.


"Creative" Processor Fees

Some companies charge fees that need a clear connection to processing. For example, a service may offer a discount for the first transaction or a bonus for adding extra information to the cardholder data and then charges an assessment fee the following month. These fees are considered "creative" and can often result in unnecessary fees being assessed on customers.


Jacked-Up Assessment Fees

Some companies charge very high assessment fees but use this to cover the cost of a scalable infrastructure. This can result in unnecessary fees being charged to customers if the company needs to keep up with its infrastructure and portfolio.


ERF/Integrity Fees

A processor charges ERF fees for fraudulently processed transactions. These fees should be avoided, as they are usually higher than what an acquiring bank charges and can even be as high as 5% of a new account's monthly processing volume.


Conclusion

Merchant account fees have become an essential issue in online businesses, and understanding the pricing model of your service provider can save you money and help you know when to switch providers. Search for a new provider once in a while to see if there are more efficient ones.

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