Q: I'm starting a new business and want to accept credit cards. It seems that all the credit card processors charge a lot of fees for each transaction. What are these fees?

A: Each credit card processing company operates somewhat differently, but there are a number of fees that are common to all of them. Here are some examples of various fees associated with a typical merchant account.

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The application or setup fee is a one-time charge for processing a merchant application and activating your new merchant account. Some processors waive this fee to promote their businesses and attract new merchant accounts.

The address verification service fee (AVS) is a fraud prevention measure that provides merchants with an additional fraud-detection tool to determine the validity of a sale, which is especially useful when the card is not present. AVS matches a sale's shipping information with the cardholder's billing address. When addresses do not match, merchants should discuss the discrepancies with their customers before shipping orders. AVS only works with cards that are issued in the United States. When AVS is used, there is a per-transaction fee for the service.

The discount rate is the percentage charged on the dollar amount of a sale or a returned transaction. Discount rates vary depending on the type of business, such as a traditional brick-and-mortar business, a mail-order/telephone-order business, a restaurant or an e-business. Discount rates also vary depending on whether a card number is keyed into the point-of-sale terminal or swiped into the terminal. Swiped rates are generally lower because of the data encoded on the card's magnetic stripe, which eliminates key-entry errors.

The secure payment gateway fee is a charge assessed to e-commerce merchants to enable them to process transactions securely over the Internet. This is usually a monthly fee.

The customer support fee is a monthly charge assessed by some processors, which enables them to provide high-quality customer service 24 hours a day, 365 days a year, often in multiple languages and dialects.

The monthly minimum fee is charged to the merchant if the total monthly discount rate amount for MasterCard and Visa transactions does not reach a minimum threshold. If the merchant reaches the minimum threshold, no monthly minimum is charged. Virtually all credit card processors initiate this fee, and generally it ranges from $10 to $30 per month.

The reprogramming fee is a one-time charge a processor may assess for converting a merchant from one credit card processor to a new credit card processor.

The transaction fee is assessed for each transaction authorization submitted by a merchant, such as a sale or a return. This fee is also charged on transactions where the card is declined. In addition, transaction fees are incurred for American Express and Discover card transactions.

Equipment and software fees vary depending on the type of business-traditional brick-and-mortar, mail order/telephone order, restaurant or e-business. Merchants will need certain kinds of equipment and software in order to process credit cards, debit cards and checks. Equipment can include point-of-sale terminals-both countertop and wireless-printers and PIN pads as well as secure payment gateways, virtual products, software and payment options for Internet businesses. Most equipment and software can be either purchased or leased, and prices vary depending on the processor.

Chargeback and retrieval fees: Chargeback fees for a disputed transaction are based on the number of chargebacks posted to an individual account ($10 to $25 per final posting). Incoming retrievals are requests for the original transaction receipt that the cardholder's bank requests and are charged whether or not there is a final posting. The industry standard is $15 per incoming retrieval.

Keep in mind, there are numerous considerations to maintaining an effective merchant account, and fees are just one component. When you open a merchant account, ask your credit card processor, agent or sales representative to explain all your prospective rates. Be sure to ask if the transaction processing company has revealed all charges that could apply to your account; you want to avoid any hidden charges. Look for a credit card processor with a reputation for being honest and upfront, whose merchants are fully informed of what is reflected on their monthly statements.

Sometimes merchants shop for discount rates, but rates are only part of the processing picture. Look for a credit card processor that consistently provides top-quality customer service, 24-hour availability and a one-stop shopping experience (i.e., point-of-sale equipment, processing software, training, 24/7 customer service in more than one language and state-of-the-art fraud prevention procedures).

Credit card processing does not have to be intimidating or challenging. Find a processor dedicated to personal interaction with its merchants. Work with agents and sales representatives who communicate directly and honestly with their merchants, explaining each charge and what it covers. Ask questions. Remember, you are the customer. Accepting credit cards can help grow your business.


Tim Miller is COO of Cardservice International and has more than 15 years of experience in the credit card processing industry.


The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.