Basics Of Accepting Credit Cards - Understanding How You Are Billed

Merchant Warehouse |

November 24, 2010

When your company signs up for a merchant account in order to accept credit card payments, there are a fair number of fees that show up on your account bill every month. There are a few basic charges to take note of that will help you understand what you are being charged, how you are being charged and perhaps what you may be able to do to alter your service to save you money in the long run.

The Discount Rate makes up the majority of costs, and is the most important fee of all. It is a percentage charged on each transaction for sustaining your merchant account. It is usually lower if you are swiping cards, and higher if you are keying them in or taking Internet transactions. If you have a discount rate of 2.4%, and you charge a customer $10, the fee would be $.24.

A Transaction Fee is the fee charged by the processor to process each transaction, regardless of whether or not it was approved or declined. It is charged on major cards and is nearly 20 cents for swiped and 30 cents for keyed-in transactions.

PIN Debit Transaction Fees only apply to debit cards. If your customers will be swiping cards and you have a PIN-pad attached to your terminal, the charge will be fixed at around 70 cents.

The Address Verification Service Transaction Fee only applies to merchants who are not swiping transactions. This fee is usually 5 to 10 cents. AVS provides a merchant with valuable address and zip code lookup on the cardholder that reduces fraud and is mandatory for Visa and MasterCard on all keyed transactions.

A Daily Batch Fee is charged by processors when you settle a daily batch and transfer the settled funds into your bank account. This occurs only when there is sales activity and is 5 cents to 50 cents.

Some sort of Monthly Statement/Support/Service Fee may appear on your statement. This is a fixed fee charged by your merchant service provider for providing you a monthly statement, although it may also go toward defraying the cost of the “free” customer support. It usually runs about $10 or so.

The Internet Gateway Fee only applies if you are using an Internet payment gateway, like It is usually billed directly by the gateway provider and can be about $30 monthly. Gateways sometimes charge an extra amount on top of the transaction fees.

Voice Authorization Fees are charged when you call in a transaction to a toll-free telephone number, usually when a terminal or software isn’t working and an authorization is needed. Rarely used by full-service account holders, it costs $.75 to $1.50.

The Monthly Minimum Fee is a minimum amount the merchant account provider needs to have in fees. As long as your credit card fees meet or exceed this minimum, you are not charged any extra fees. It can be as low as $20 or so. If merchants don’t process enough business for the various fees to reach the minimum, they must pay the difference.

A Surcharge Fee/Partially-qualified Fee/Non-qualified Fee is related to an additional discount fee that some cards are charged for certain card types, like business cards, corporate cards, rewards cards and international cards. The rates are about 0.5% to 2.5% per occurrence.

Application/Setup Fees are charged when your account is set up. This fee used to be charged for all new merchant account accounts, but it is not as common anymore and many providers do not charge it.

A Reprogramming Fee may be charged if and when you need to reprogram a piece of existing equipment or software. It does take time and effort to program a terminal, as well as software, and as a result this fee is sometimes charged by merchant providers and/or terminal or software vendors.

Chargeback and Retrieval fees are related to a customer or issuing bank disputing a transaction that was processed. Common reasons for a customer disputing a charge are the customer doesn’t recognize the charge or someone fraudulently used their credit card. A merchant will have a chance to refute the dispute by providing a written response and documentation. The cost for a chargeback is usually around $25. This is the fee that the merchant account provider charges for handling the dispute.

Annual Fees are an amount that is charged for your merchant account by your processor, once yearly as the name implies. Only some providers charge it.

Termination Fees are the fixed charges for cancelling your merchant account. There is significant cost in setting up and maintaining a merchant account for a business, and this fee helps recoup some of those losses that the provider incurs if a merchant cancels, especially in the beginning. However, most providers are willing to reduce or eliminate this fee if you have unresolved issues.

There are lots of hidden (and even some false) fees to be aware of. Unfortunately, hidden fees seem to be common among some unscrupulous agents and merchant account providers. A common hidden fee is for a merchant account provider to offer you a teaser rate that usually goes up after a few months of processing. Sometimes, teaser rates only apply to one specific card type in one specific category, allowing providers to charge higher rates on other cards and categories. There are many different hidden false fee names like file fee, audit fee, conversion fee, security fee, over-the-limit fee, excessive transactions fees, billback fees and discount rate fees charged on refunds. Beware of all of these and the providers who charge them.

When you accept credit cards, understanding the basic merchant account fees that you are billed is important. It is particularly important to know these costs as you look at various merchant account offers and select a merchant account provider for the first time. The more you know upfront, the better advantage you’ll have with merchant account providers. While these charges are important, be sure to consider the setup, ease of use, professional attitude, customer service, integrity of the company and overall reputation. Your good working relationship with your merchant account provider will involve a lot more than just numbers, but every cost must be understood. A reputable company will be forthcoming with you, so it you feel you are not getting the straight story, keep shopping around.