Many payment services providers have done an excellent job in ensuring their application processes are as easy and as straightforward as possible, but there is still a lot to be done regarding merchant account rates. Consequently, these companies have earned a reputation of having extensive, complicated and overwhelming fees.
Unfortunately, a good number of merchants end up signing up for an account having not fully understood the charges, and they end up paying blindly. This ultimately becomes a problem when they realize some costs are unfair to them, and it is too late to dispute.
It is, therefore, good merchant practice to be knowledgeable about your card processing fees, before you open an account. Below are some of the essentials:
Types of fees
A merchant incurs the following charges in any given card transaction.
- Transaction fees
These constitute the biggest cost of running a merchant account. They are charged to process every transaction, whether it is approved or declined by the customer’s card-issuing bank.
- Fixed fees
On top of transaction fees, credit card processors charge some flat fees for additional services, such as monthly statements, support or service charges. Some companies may even charge annual flat fees.
- Variable fees
Such fees are charged only when the merchant does something to justify them. For instance, chargeback fees are only charged when chargebacks occur.
- Hidden/Junk fees
Going by names such as file fee, security fee, or conversion fees, these charges usually come as a surprise and escalate within months after you’ve signed the contract. Thankfully, we now have companies that are openly known to charge zero hidden fees. eMerchantBroker is a good example.
Models of pricing merchant accounts
Providers usually employ one of four models of pricing their accounts: Interchange-Plus, Tiered, membership and blended. These models outline the terms of fees to be charged to a merchant.
Considered the most transparent model, Interchange-Plus clearly lists all the fees and markups upfront; and when you sign up for the account, details of every charge will be included your monthly statement.
This is the plan most employed by payment processors, and although not necessarily wrong, it is a more complicated price model that account providers often take advantage. A merchant, therefore, has to understand the fees being charged fully.
Membership model is just as transparent as Interchange-Plus, but with lower overall fees to favor merchants with larger transactions.
This model is employed by processors who don’t charge monthly fees. Instead, all costs are blended to create one uniform rate per transaction.