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.
