Information on Merchant Accounts,
Ecommerce and Credit Card Processing

August 17th, 2005 by Jamie Estep

What Does All This Mean? – Merchant Account Fees

Filed in: Merchant Accounts, My Favorite Posts | 7 comments

Every merchant account application consists of 4 main sections; the business and past history, anticipated processing volume and anticipated transaction information, merchant account fees, and the signature section. The Merchant Account Fee section is undoubtedly the most complicated section and is the most important to you, the merchant.

The merchant account fee section is a web of numbers and abbreviations that can confuse even the most technically savvy contract reader. The exception to the complex application rule, is a Nova application. While most companies list every possible fee incurred by a merchant, Nova lists only a few essential fees on their actual application. The Merchant Account Fees are offered to you by the bank or Merchant Service Provider you are signing up with. These organizations have a set buy price for fees, and what you get is a slight markup from what they pay.

The fee section consists of 2 parts; the processing and transaction fee section, and everything else. The everything else section is by far the larger and must be understood just as much as the other section. These sections are not divided by order, but grouped by their purposes.

The Processing and Transaction Fee Section:

Processing Fees:
This section is going to outline your basic processing fees. The Processing fee is the listed percentage of each transaction that you are charged for processing it. A standard merchant account works off a three tier system. A three tier system has a base discount processing rate, a mid-qualified rate, and a non-qualified rate. The base rate is what is most likely going to be quoted to you, but the mid and non qualified rates are just as important. Mid and Non qualifying transactions are transactions that fail to meet certain processing criteria depending on your merchant account type. Downgrading reasons are further discussed in this post: Why Am I Downgrading? – Part 1/3. The extra fees listed in the Mid and Non qualified areas will be added to the base fee if a transaction fails to qualify. Downgrade charges can make up 25% or more of your total transactions so your monthly bill can be greatly increased if you have high downgrade charges.

Good Downgrade Charges Are: +1.00% MID, and +1.50% NON.
If you have a base processing rate of 1.75% and you downgrade to Non qualified, the transaction just cost you 3.25%. This is a very good scenario. Many processors charge upward of 2 or 3% extra for downgrades, plus additional transaction fees.

Processing fees are always charged on approved transactions, and may be charged on returned transactions. This is at the discretion of the processor. About 50% of merchants are charged both directions on their transactions.

When accepting debit cards as credit cards, you can often be setup with a reduced rate debit program. This will lower the processing fees for all debit cards that you take, but they will still operate on a 3 tier system like credit cards.

Transaction Fee Section:
The transaction fee is a flat, per transaction fee that is charged on each transaction along with the processing fee. This can range from zero dollars and up, but is usually about $.22 for swiped accounts and $.25 for keyed accounts. It is commonly called a transaction fee or authorization fee. It is charged on all approved or declined transactions as well as batches and returns. It is basically a fee to access the processing network, therefore is charged every time the network is accessed.

Pin Debit Transaction Fee:
If you have a pinpad and your customers use it to process their debit card, you can be setup with a reduced rate Pin debit program. This will waive all processing fees for Pin debit transactions and you will have a flat transaction fee for pin entered debit cards.

All Other Fees:

Voice Authorization:
A voice authorization is when a merchant calls in to a Help Desk to manually authorize a transaction.
About: $2.00 – $3.00

Voice AVS:
Voice AVS is manually verifying the address of a card holder against the card by calling the card in to the processors help desk.
About: $.75

Electronic AVS:
Electronic AVS is a program in a credit card terminal that will prompt and verify the card holder’s address against the information linked to the card. This is done completely automatically through the terminal.
About: $.5 – $.10

This is an extra transaction fee for processing a discover card.
About: $.30

American Express:
This is an extra transaction fee for processing an American express card.
About: $.30

Batch / Batch Header Fee:
This a fee charged each time a merchant batches out their terminal or software.
About: $.0 – $.30

Chargeback Fee:
This fee is an administrative fee charged any time a merchant receives a chargeback.
About: $15.00 – $30.00

Return Fee / Return ACH Fee:
A return fee is charged if your bank account comes up with insufficient funds when the processor tries to collect payment from you.
About: $15.00 – $30.00

Early Termination Fee:
An early termination fee is a fee that is charged if a merchant closes their account or breaks their contract before the agreed upon time in the merchant account contract.
About: $0.00 – $500.00

Retrieval Fee:
A retrieval fee is a fee for requesting a copy of the transaction receipt for a transaction that you processed. Make sure this one is blank. Why should you be charged when a customer or the processor needs a copy of a transaction from you?
About: $0.00 – $15.00

Sales Transaction Fee:
A sales transaction fee is an additional transaction fee added to each transaction that a merchant processes. This is a fee that is only used for the provider to make an extra buck off a merchant. If you find you are being charged this, you should probably find another provider.
About: $.00 – $.30

Monthly Minimum Fee:
This is the minimum amount that you must pay in processing fees each month. If you are unable to reach this amount, then you are charged the difference of this amount at the end of the month. The monthly minimum is calculated only from discount processing fees. Additional Mid and Non qualified fees are not included in reaching the monthly minimum.
About: $15.00 – $30.00

Statement Fee:
This is a monthly fee for the delivery of a paper statement to your business. By law, a paper statement must be sent to you each month, so this fee is rarely waivable.
About: $5.00 – $10.00

Wireless Fee:
If you are processing with a wireless credit card machine, this is basically your monthly cellular bill.
About: $20.00 – $30.00

E-Merchant View / Online Account Access Fee:
If you are setup with online access to your merchant account, this is the monthly fee you are charged to have the ability to access your account online.
About: $5.00 – $10.00

Internet Access Fee:
If you process over the internet or through a website, this is an additional fee for all internet transactions. This is another fee some processors use to make an extra penny from their customers.
About: $.05 – $.10

Supplies Fee:
Some merchants are setup with monthly supplies. This fee is for those supplies.
About: $Varies

Monthly Fee:
This is a blank spot for a provider. Make sure it is blank when you sign your merchant account application. There is no reason you should ever pay this fee.
About: $Varies

Annual Fee:
Some processors charge an annual fee. The fee listed here is what you have to pay once each year to process with that particular company. This fee is only seen with a few processing companies.
About: $Varies

Other Volume % Fee:
Yet another blank spot for a provider to add some more penny stealing fees. Make sure this one is blank too.
About: $Varies

Other Fee:
The worst blank spot on any application. Just one more anything fee that some providers use to make a little more.
About: $Varies

Setup / Startup Fee:
This is a fee just for getting setup with a provider. Most good providers have no setup fee.
About: $Varies

Application Fee:
Even more ridiculous than a setup fee, some companies charge you just to apply with them. Unless you are a non-American or high risk business, if a company requires this, find someone else.
About: $Varies

7 Responses to “What Does All This Mean? – Merchant Account Fees”

  1. shawn December 23, 2008 at 10:46 pm

    do you know where i can get explanations of the abbreviations on a merchant statement

  2. Accept Payments April 12, 2009 at 1:31 pm

    Shawn, every merchant account statement is different do you have a specific term?

  3. What do these merchant rates & fees mean? | Approved Payments June 4, 2009 at 8:51 am

    […] What does all this mean? – Merchant Account Fees from the Merchant Account Blog. A thorough look at ALL the fees that may apply. […]

  4. Nobody you Know July 24, 2009 at 12:10 am

    I like the fact that you print out all of the fees for people to see, however, I feel that some of them are unfairly represented and scrutinized unfairly as a result. For instance the application fee. There are costs associated with approving any merchant for an account. These costs range from checking creditworthiness to special licensing and document requests. Any business would require a fee to cover costs in this event. If they don’t, I can guarantee you that they are getting it somewhere else. If there is one thing that I learned in this industry is that NOTHING is free. The retrieval fee should ABSOLUTELY be passed through to the merchant. The customer is Accusing him or her of wrongdoing, not the processor. If the chargeback is won and no refund is issued, there is typically no retrieval fee made, however if the chargeback is lost, then it was because proof was given that the merchant did something wrong, so why should the processor be liable for that?? The sales transaction fee is pretty standard. Good luck finding a provider who doesn’t include that and if they do, you better look at your discount rate because I’ll bet it’s higher as a result. You list “good downgrade charges” and other percentages you deem as good without specifying which merchant type it is good for? This varies depending on so many different things. Is the card present or not, is it swiped or keyed, did avs match or fail, did you get the cvv2 values or not and were they correct, is it a rewards card or other special type that carries a higher fee from the associations themselves, etc. etc. Look, I completely agree that there are a TON of merchant account providers sticking in their BS fees whereever they can, but you can’t downplay a reasonable fee for a service simply because you don’t think you should pay it. You are lumping all merchant account providers into one categories…like we all do with attorneys. The bottom line is that, as a merchant, you should ALWAYS get at least 3 bids on your merchant account and let each provider know that you will be getting multiple bids AND if possible try to deal directly with a credit card processor, rather than a 3rd party. The processors that deal with nothing more than 3rd parties are not out there for the benefit of the merchant…they simply contract with as many ISO’s as possible and pile on the merchants. The problem here is that you have their fees now on top of the processor’s fees on top of the card association’s fees. There are only a few MAJOR processors, regardless of what your MSP says…most claim they are the processor when they are only contracted with the processor. The major players are: Global Payments (formerly NDC), First Data Corporation or FDC/FDMS, Chase Paymentech, Fifth Third, Elavon (formerly Nova – part of US Bancorp – also acquired First Horizon Merchant Services), Heartland Payments, and Total Systems (formerly Visanet and Vital Systems). Regardless of what they tell you, BofA, Wells Fargo, PNC, First Tennessee, and most other banks ARE NOT PROCESSORS!!! They are only contracted with processors. Save yourself time and money and go to the processors directly!

  5. james lin September 3, 2009 at 3:10 pm

    Can you get a lower rate if you can provide PCI-Compliance report for your website?

  6. SS February 18, 2010 at 3:28 pm

    Question to (Nobody you Know on July 24th, 2009 at 12:10 am) or anybody else who knows, Would FNBO (First National Bank of Omaha)
    be one of those processors? Because their website refers to them as “processors” and the reps from that company claim to be a “front end, and back end” bank. Or are they full of it like so many of them are.

  7. Michael March 4, 2010 at 9:27 pm

    Nobody you know…

    That is the absolute worst advice I have ever seen anyone give. You are so mis-informed as to what a business owner needs to do to put their business in the best possible position. Going direct to the processor is NOT the best way but the worst. A business owner has no buying power and can not negotiate rates with a processor. So really, they are subject to what ever rates that processor gives them not to mention they will get lost in the customer service hell if they ever had an issue. Going to a bank is not the solution either..Come on long have you been doing this? Don’t you know that a busy business owner does not have the time to call 10 different companies for their processing getting the same BS story for every shady salesperson. Then what if they want check conversion or gift cards? Do they have to call another 10 companies and go thru the same crap? Who has time for that? No one. So before you start spewing you nonsense about what a business owner has to do, who don’t you put your self in their shoes.. Try that