No matter what you use, knowing the terms of your merchant account, like fees, rates, and charges, ahead of time can save you a lot of money, time, and stress. Here’s what you need to know before you start processing plastic.
Understanding The Basics
The way a merchant services provider charges you for fees depends on the type of account you sign up for. There are two basic types of account services:
- A Direct Merchant Account and;
- Third-Party Payment Providers
Direct accounts refer to merchant accounts that you obtain directly from a merchant account provider. These are usually banks or other lending institutions which contract with credit card companies to provide merchant services.
Third-party payment providers are companies functioning as middlemen, payment aggregators. These companies have what amounts to a “master merchant account” which they then divide up and “license” to individual businesses, like yours.
You pay a fee for the service, but don’t have to deal with the hassles of signing up for a traditional merchant account.
The industry standard for direct pricing merchant accounts is the Interchange rate plus a per-transaction fee. On top of these fees, a monthly service fee may be charged.
If you decide to run your merchant account through a third-party provider, you may pay higher rates on every transaction completed, plus a per-transaction fee. However, these arrangements often don’t require you to pay a monthly fee or sign a contract.
They’re ideal for businesses with low transaction volume.
Swipe Or Terminal Dip Fee
Even the best merchant account will charge a terminal swipe fee. These fees are charged every time a customer “swipes” their EMV card into the terminal. Fees are usually a percentage of the sale plus a flat per-transaction fee.
When it’s time to close up shop for the day, you want your takings. Account transactions are “closed out” through a process called “running a batch.” Some merchant account service providers charge a fee for this, so ask about it. If your service provider does, try to minimize the number of times you run a batch – once a week if you can help it.
If you change merchant service providers, you’re going to need new equipment and that equipment will need to be reprogrammed. There’s a fee for that in most cases.
It happens to the best of us. You’re selling the greatest thing since sliced bread. A customer disagrees with you, and wants to return your merchandise. What happens? You get charged a chargeback fee for the return.
A gateway fee is charged on some accounts when you process transactions in real time. You can avoid this by agreeing to have cards processed at a later time. The risk, however, is that you might not know whether a customer’s payment went through or not until later, after the customer is long-gone.
An annual fee is charged on some accounts. Ask about this. There’s no real reason you should have to pay one, so negotiate it away or find another provider.
This is a fee for cancelling your merchant account. It’s mostly applicable to direct merchant account services where you sign a contract. The fee is usually fairly expensive to deter you from cancelling. Ask about this fee before you sign a contract.
Thomas Lewis works in retail business IT and understands the need for streamlined merchant services. He likes to share his insights with an online audience and writes about a variety of topics for a number of B2B websites on a regular basis.