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.
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.
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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.