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Credit Card Processing Fees Explained

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Expert Market guide to credit card processing and merchant accounts

You can access credit card processing services by opening a merchant account, or by using a third party merchant service which processes transactions on your behalf, and deposits the payment into your account. Naturally, providers charge for their merchant services.Initial Set Up Charge & Application Fees

There is normally a charge to set up a merchant account or begin using a third party provider. Accounts vary, depending on the kind of business you operate, and whether it is considered domestic or international.As a general rule, the simpler the service you need, the less you will pay. For a small business operating solely in the US, set up fees are around $60.However, for a business that carries greater risk, such as those offering adult products or dangerous goods such as firearms, fees will duly increase to somewhere in the region of $200, whilst for an international payment processing, you can expect to pay around $700 dollars+.

Annual or Monthly Fees

Providers usually charge a monthly or annual fee to operate the account, dependent on the type of service you choose. For a basic account, this could be as low as $10 per month, rising to around $20 dollars for higher risk or international accounts.Some providers offer the option to pay a higher monthly fee, but then make no further charges for individual transactions. You will need to consider your pattern of operations carefully to decide whether this might be a more cost effective option for you.

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Transaction Fees

Individual transaction fees may also be chargeable. These can vary between $0.30 and $0.45 per transaction.There are several ways to calculate the exact fee. 3-tier pricing, in which fees are grouped into 3 tiers depending on the kind of transaction or card used, is the most common. For example, cashback cards may have higher fees.

Discount Rates

As well as the transaction fee, discount rates can be applied to cover costs such as network charges and mark-ups. This charge is normally between 1.5% and 5% of the transaction amount, depending on the type of account you have.

Statement Fee

Some providers charge to issue a monthly statement. This may even apply if you opt for paperless billing as it covers the cost involved in collating the information.

Minimum Monthly Fee

The provider needs to ensure their costs are covered each month, and so may charge a minimum monthly fee. If you only have a few transactions each month, you may have to 'top up' the fees from these transactions to reach the minimum required amount.

Batch Fee

A fee is charged each time a batch of data is sent. Batch information needs to be sent every 24 hours, or the charges levied by the card operators increase. This is simply in order to deter late submission.

Chargeback Fee

If a chargeback is issued on your account, a fee is taken to cover the cost of processing. This is usually between $15 and $30.

Early Termination Fee

Providers may charge a fee if you decide to end your contract early. Most contracts run for 1-3 years and some for up to 5 years.You normally need to give 12 months notice to terminate your contract. If you cancel early, fees could include a basic charge, the monthly statement fees and minimum monthly fees you would have paid, and perhaps even a fee for predicted lost profits.

Payment Gateway Fee

The payment gateway also charges a fee for processing authorization requests. This can vary, depending on the kind of credit card used.

Authorization Fee

A fee is usually charged when an authorization is requested, irrespective of the outcome of the request.

Check Your Contract

With such a complicated fee system in place, it's always important to check the details of your contract before committing yourself to a long term agreement.