Explaining Credit Transaction Fees

It's your hard-earned money. Be aware of what you're paying for.

Q:I'm starting a new business and want to accept credit cards. Itseems that all the credit card processors charge a lot of fees foreach 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. Hereare some examples of various fees associated with a typicalmerchant account.

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The application or setup fee is a one-time charge forprocessing a merchant application and activating your new merchantaccount. Some processors waive this fee to promote their businessesand attract new merchant accounts.

The address verification service fee (AVS) is a fraudprevention measure that provides merchants with an additionalfraud-detection tool to determine the validity of a sale, which isespecially useful when the card is not present. AVS matches asale's shipping information with the cardholder's billingaddress. When addresses do not match, merchants should discuss thediscrepancies with their customers before shipping orders. AVS onlyworks with cards that are issued in the United States. When AVS isused, there is a per-transaction fee for the service.

The discount rate is the percentage charged on the dollaramount of a sale or a returned transaction. Discount rates varydepending on the type of business, such as a traditionalbrick-and-mortar business, a mail-order/telephone-order business, arestaurant or an e-business. Discount rates also vary depending onwhether a card number is keyed into the point-of-sale terminal orswiped into the terminal. Swiped rates are generally lower becauseof the data encoded on the card's magnetic stripe, whicheliminates key-entry errors.

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

The customer support fee is a monthly charge assessed bysome processors, which enables them to provide high-qualitycustomer service 24 hours a day, 365 days a year, often in multiplelanguages and dialects.

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

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

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

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

Chargeback and retrieval fees: Chargeback fees for adisputed transaction are based on the number of chargebacks postedto an individual account ($10 to $25 per final posting). Incomingretrievals are requests for the original transaction receipt thatthe cardholder's bank requests and are charged whether or notthere is a final posting. The industry standard is $15 per incomingretrieval.

Keep in mind, there are numerous considerations to maintainingan 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 prospectiverates. Be sure to ask if the transaction processing company hasrevealed all charges that could apply to your account; you want toavoid any hidden charges. Look for a credit card processor with areputation for being honest and upfront, whose merchants are fullyinformed of what is reflected on their monthly statements.

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

Credit card processing does not have to be intimidating orchallenging. Find a processor dedicated to personal interactionwith its merchants. Work with agents and sales representatives whocommunicate directly and honestly with their merchants, explainingeach charge and what it covers. Ask questions. Remember, you arethe customer. Accepting credit cards can help grow yourbusiness.

Tim Miller is COO of Cardservice International and hasmore than 15 years of experience in the credit card processingindustry.

The opinions expressed in this column are thoseof the author, not of Entrepreneur.com. All answers are intended tobe general in nature, without regard to specific geographical areasor circumstances, and should only be relied upon after consultingan appropriate expert, such as an attorney oraccountant.

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