Why Advertised Credit Card Processing Rates Don't Mean Anything

Merchant Warehouse |

December 7, 2010

As a merchant, would you prefer to spend a bit more money on a great merchant account or less money for a merchant account with fewer features? Well, unless you have recently awakened from a coma or traumatic event, you would probably prefer the account that costs less money, since these days everyone would like to save a few bucks.

Unfortunately, when it comes to the merchant industry, it’s not as simple as most would like. There are a plethora of different fees, charges and billing structures that make it rather complicated to figure out exactly how one provider compares to the next. And an account that costs less might actually cost you more in other ways, in the long run. Perhaps we should take a closer look at how you should locate, compare and then, finally, choose the right account provider for your business.

Research Pays Off

It will pay off well for you to research the terms and conditions of the fee structures associated with all of the various services that account providers (and/or banks) offer you. Make sure to ask prospective merchant service companies, before you even apply for an account with them, to forward you their terms and conditions.

Once you gather this information from several prospective firms, make certain that you understand every one of the terms and conditions clearly before venturing into these unfamiliar waters. Read the fine print and grasp the situation solidly before jumping into anything.

Slow Down and Consider

There are many things to be aware of when trying to figure out the real cost of account rates and fees. However, there are a few main considerations besides the all-important discount rate:

  1. Cancellation fees (how much, details, contract duration). If you do not want to be locked into a contract, look for a company that won’t charge early termination fees.
  2. Monthly recurring fees and possible monthly minimum fee. The importance of reading the terms and conditions can’t be stressed enough, and you need to look for sections specifically addressing fees, incidental fees, exceptions to or components of the discount rate, etc.
  3. Free equipment offers. Make sure to read the terms and conditions to see if their are any potential charges you are unaware of, who owns the equipment if you quit processing with the provider and if there is a replacement cost if the equipment breaks or is damaged. Once you have armed yourself with the basic facts, do your shopping around in order to locate the best possible credit card processing rates available. There are several options, pricing plans and incentives to choose from when setting up a new merchant account. The choices that you make should follow upon certain requirements of your business and that is the best way to discover which one is going to suit your needs.


Many account providers will not charge an initial set up fee, while others will charge a one-time overall fee but include other services for free. Every single provider will charge a discounted rate of some sort in order to obtain your business. If they want your business bad enough, they will work to get it by offering good discounted rates. Of course, they can “make up” the difference in other fees and penalties, so make certain you always consider the discount rate as just part of the overall cost.

Final Figures

 Of course there are other things that you will need to factor into the equation, such as your average profit margin per month, number of transactions per month, your average order size and how often you will be accepting credit card transactions. Merchants that have a higher volume may need to focus on the reduction of their discount rates and their per-transaction fees rather than their monthly fees and so on. Every business is different, so there really is no “one size fits all” answer.

Smaller businesses with larger order sizes but smaller transaction volumes often have more flexibility with their discount rates and transaction fees, although the flexibility is at a higher cost level much of the time. Still, this leaves room for them to put the emphasis on reducing monthly/minimum fees. A business’s success in eliminating (or at least drastically reducing) chargebacks and item returns can have a major impact on reducing overall monthly costs.

Bottom Line Time

 At any rate, talk to others in your industry and compare their recommendations with your own research into your prospective merchant providers. Accepting credit cards should be a profitable investment if you choose the right service. In order to get the best credit card processing rates, you will need to do your homework well. Research thoroughly for the most affordable possible terms and conditions, but don’t forget that the formulas your use and calculations you make are neither exact nor continuously stable.

In the “back to basics” category, make sure that the companies you are considering are reputable, as you don’t want to be stuck with a provider that has poor customer service or reneges on its commitments, especially when their service involves your money and impacts your livelihood. “Due diligence” is not nearly a strong enough term for the research you must do. “Business survival studies” is more like it!