Information on Merchant Accounts,
Ecommerce and Credit Card Processing

June 25th, 2007 by Jamie Estep

The processing fee is the least important one on your application!

Filed in: Merchant Accounts, My Favorite Posts | 4 comments

If you are in the process of, or have applied to accept credit cards for your business at some point, there’s a good chance that you found or were found by several merchant service providers. And chances are you based a large part of your decision on who to process with, from the processing fee. The processing fee, while important, is the most overrated and overvalued fee that a business can pay attention to.

Here’s why…

The majority of businesses are only going to process a few thousand dollars per month. While most of us fantasize about doing millions of dollars in sales each month, it just simply wont be the case, ever. Because of this invisible cap on sales, and the fact that every decent merchant account provider is going to have a similar processing fee, you will pay about the same amount in processing fees no matter what company you process with. However, the other fees that are associated with your merchant account can tip the scale between affordable and a complete rip off.

Just to clarify before I go any further, I always recommend businesses not shop based solely on price. However, those fixed and extra little fees that you weren’t told about up-front, ignored because they were really small, or simply didn’t understand, are going to have a big affect on what you will actually pay to accept your customer’s cards. When those fees are hidden or not disclosed, it’s a pretty good sign that you found a company that you may not want to do business with.

And now the facts:

Let’s say a company processes twenty thousand dollars per month, with a volume two thousand transactions (Average sales of $10). The difference between 1.69% and 1.75% over $20,000 is only $12. Not really anything to call home about.

Now lets say the provider with the 1.69% rate is charging $.25 for each transaction while the other is charging $.20. That comes out to a difference of $100 per month, which is probably something worth considering. A difference of $.01 per transaction will have more affect on the monthly cost than .1% in processing fees.

In this case: 1.69% & $.25 = 2.19% & $.20.

The processing fee in the second scenario is over 75% higher, but the cost is the same as the perceived lower rate.

When you start to add in things like $.05 AVS fees that you didn’t know about (You mean they charge me for that, and it’s required?), maybe a Watts surcharge of $.05 (what the hell is that?), and maybe even some fee listed in the miscellaneous section for $.05 (run away now…), the extra cost adds up really fast. You don’t even need to take into account things like downgrade fees, which can double your monthly bill, to see that little fees can make a huge difference at the end of the month.

My advice to anyone looking to accept credit cards, or anyone looking to find a new processor, is to stop looking at the huge distraction called the processing fee, and look at everything else you will be paying. Your books will be far better for it, and you will truly find out what kind of company you are dealing with.

4 Responses to “The processing fee is the least important one on your application!”

  1. Cory Thomas August 6, 2007 at 4:19 pm

    What a great article and blog for that matter! I have been in this industry for over two years and pretty much everything people hate about merchant services is why I started. I was lied to, fees were hidden, and don’t even get me started about my lease! My rep never answered after she signed me up and i never got anywhere with the corporate office. I have never been a blog guy until now! I will start sending all of my clients here so that they cna see the things that i am telling them are true!
    Thank you so much for this!

  2. Bill Braswell June 26, 2008 at 7:49 am

    Excellent article. Have been in the business 10 years and this blog is the absolute best. I will show this to my sales people, preach this to my sales people, because it is the truth. Now if customer will only open their ears and minds and get over the “Best Discount Rate Available” lie that they hear over and over.

  3. Jane April 7, 2009 at 7:07 am

    Just researching this for my smal business… so if I have a small business, $20 avg transaction, $400.00 a month (hopefully will go up)… I’m really looking for ‘per transaction cost’ as my transactions are small and frequent, while my over all total is not.. do I have the right?

  4. Jim Orozco January 25, 2010 at 2:07 pm

    I fully agree with this article. Too many merchants are focused on a lower Discount Rate (processing fee) and processors intentionally get them to focus on that, all the while hitting them with hugely inflated back end surcharge fees. My company specializes in educating merchants about the True Costs of processing (to dispell the myth of “lower Rate) and provides full disclosure on all pricing including surcharges to provide the best overall solution for our clients.
    If you’d prefer a company that earns its business from a more ethical perspective and provides education, consultation, excellent service and full disclosure on all pricing, please contact me and I’ll be happy to provide client references. Thank you.