The following text has been adapted from Fee Sweep. Download your full copy of Fee Sweep here.
Merchant account providers are businesses just like any other business and need to make a profit to stay alive. Now that we have covered processing fees, it’s time to cover some of the other possible fees that come with merchant accounts. Providers may have different names for their fees and some providers may charge fees that others do not. Keep in mind that the fees below are usually highly negotiable and can be eliminated or greatly reduced through a little negotiation.
- Setup Fee:
- Some merchant account providers charge a fee for setting up a new account. This fee varies greatly by provider and the services being provided. Generally speaking, there is rarely ever a reason to pay a setup fee unless the provider is providing a high level of support to get you up and running (i.e. setting up a complex POS environment).
- Batch Fee:
- Other possible name variations: “Batch Capture Fee,” “Batch Header Fee,” “Settlement Fee” or “Daily Closeout Fee.” A “Batch” is the total dollar amount of transactions charged in a single day that will be deposited into your checking account as one deposit. The batch fee typically ranges from 15 – 25 cents per batch, or charged for every item in the batch (e.g. 5 cents per item). A flat fee for the batch is usually more cost-effective.
- Statement Fee:
- The merchant services industry seems to be one of the only industries that charges for sending you monthly account statements. The average Statement Fee ranges from $5-$15 per month. This fee is becoming less common and is often disguised under another name. You should attempt to eliminate it, if possible.
- Gateway Fee:
- This fee will only apply to you if you have an e-commerce business or use a virtual terminal. The Gateway Fee is often a flat monthly fee (varies by provider) plus a per transaction fee built on top of the total processing fee (often $0.05 per transaction made through the gateway). Gateway fees are usually easy to eliminate if your merchant account provider also supplies the Gateway. It is less negotiable if the Gateway is supplied by a third-party.
- AVS Fee:
- This stands for “Address Verification Service” fee. Typically, AVS is only used in e-commerce transactions and virtual terminals. Merchants will only incur an AVS fee if they enable Address Verification and enter the customer’s address. Using AVS adds security and lowers the processing rate for the credit card transaction; however, it is an optional setting for most merchant accounts. A small transaction fee will apply if AVS is enabled, usually 5 to 10 cents but sometimes a percentage of the sale amount. This fee is usually cannot be eliminated, but may be lowered in many cases.
- Voice Authorization Fee:
- In rare cases (typically high dollar transactions that deviate from a consumer’s normal buying behavior), a card issuing bank may want to call a customer to verify that he/she authorized a purchase. Voice Authorization is done to protect against fraud but the fee is charged to you. Fees for this service can vary widely based on the merchant account provider and are typically either a flat fee or a percentage of the total transaction—the latter usually being much more expensive.
- Chargeback Fee:
- A Chargeback happens when a customer disputes a purchase through his/her credit card company. Customers usually issue a Chargeback when they do not recognize a charge on their statement or if they disagree with the transaction. You can fight a Chargeback by submitting proof that the customer approved the transaction with signed receipts or invoices; however, too many Chargebacks can cause a provider to terminate your merchant account or establish a Cash Reserve by withholding your sales or debiting your checking account. Therefore, you should avoid customer Chargebacks as much as possible. The typical fee for a Chargeback is $25-$35 per incident.
- American Express Authorization Fee:
- An American Express Authorization fee is an additional fee for charging an American Express Card through a merchant account and is separate from the processing fee that American Express charges. For example, if you charge an American Express Card, you will usually experience two separate fees: an American Express transaction fee (usually between 3%-5% of the transaction) and an American Express Authorization Fee charged by you merchant account provider (usually 5 to 10 cents per transaction).
- Monthly Minimum Fee:
- Most merchant account providers charge a Monthly Minimum Fee if the total processing fees for the month do not add up to a minimum fee (usually $15 – $35). For example, if the monthly minimum fee charged by a provider is $15 and a merchant does not charge any credit cards in that month, the merchant will be charged a minimum fee of $15 in addition to any other monthly fees for that month. If you process more than $1,000 per month in card transactions, you will usually not be subject to a monthly minimum fee. If you have a seasonal or low-volume business, you may be able to eliminate it altogether.
- DDA Account or Name Change Fee:
- Some merchant account providers charge a fee if you need to update your business name or deposit account. The fee varies by merchant account provider.
- PCI Compliance Fee:
- This is one of the most abused fees in the credit card processing industry. Sometimes called the “PCI DSS Compliance fee”, “Security Fee”, “Fraud Prevention Fee,” “Fraud Regulation Fee,” and other variations, the PCI Compliance fee is a cost for the merchant account provider that originates from the PCI Security Standards Counsel, an organization that oversees and enacts security policies of the card processing industry on behalf of the card brands. It is not a governmental agency as it is often scapegoated. Merchant account providers incur annual costs to undergo compliance audits (aka: QSA audits) to ensure that cardholder data is processed and stored securely under the standards set by the PCI Security Standards Council. For the Tier 1 providers (the largest providers), the annual average cost of these audits is $225,000 in fees and company resources (Source). Most providers pass this cost onto you at a great profit to themselves. The average PCI Compliance fee costs merchants about $80 annually, but can go much higher. Some providers simply call it an “Annual Fee” to avoid confusion. Some providers charge it annually while others charge it monthly.
- Beginning in 2011, merchant account providers are now required to submit form 1099-K for you in order to report to the IRS the income you received through your credit and debit card sales. Some providers are now beginning to charge a fee for undertaking this task. It is unclear if this fee is legal and allowable under the IRS reporting rules, but a few providers have opted to take advantage of it until the language in the law is clearly defined. Most providers that collect this fee do it at great profit to themselves. The fee often is disguised under a variety of names. If you see a vaguely named fee, you should ask what it is. If it is an IRS Reporting Fee, you may be able to negotiate it out.
The preceding text has been adapted from Fee Sweep. Download your copy of Fee Sweep here.