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Merchant processing fees explained

If you've started researching merchant accounts and ecommerce I'm sure your head is spinning. There are so many companies, and so many fees, and you want to know how it all works together.

What kind of fees will I have to pay?
There are 3 types of fees associated with merchant accounts, one-time, recurring and transaction fees. One-time fees are charged for the setup or application process for your account. These fees are only paid at the initial setup and will never be charged again. Recurring fees are charged monthly and/or annually regardless of how many transactions are processed in a given month. Transaction fees are charged as a percentage of the transaction amount and/or a flat fee per transaction.

One-time fees
One-time fees are often described by merchant providers as application or setup fees. Be careful some providers will advertise $0 setup fee and then charge software purchase fees or some other startup fee that they have artfully hidden. These fees range between $0 an $200.

Recurring fees
Recurring fees include monthly and annual fees. To ensure accurate comparison it is recommended to divide any annual fees by 12 and add to monthly fees. Recurring fees are sometimes called statement or support fees and/or gateway fees. These fees range between $0 and $60 monthly and up to $99 annually.

Transaction fees
Transaction fees are charged on each transaction that is processed. In most instances there is both a flat transaction fee and what is called a discount rate. The discount rate is the percentage of each transaction that is kept by the processing bank and the transaction fee is the flat rate kept by the merchant account provider. These fees range between 2% and 10% for discount rate and 25 and $1.00 for transaction fees.

Monthly Minimums
Some merchant accounts charge a monthly minimum transaction fee. This means that if the total of your discount and transaction fees for a particular month do not equal the minimum you will be charged the minimum amount instead.

Examples
Plan 1
$0 Setup Fee
$0 Annual Fee
$25 Monthly Fee
$25 Monthly Minimum
2.25% Discount Rate
25 Transaction Fee
Plan 3
$0 Setup Fee
$49 Annual Fee
$0 Monthly Fee
$0 Monthly Minimum
3.79% Discount Rate
50 Transaction Fee
Customer A
$350 Monthly Sales
$25 Average Transaction
Customer B
$3000 Monthly Sales
$25 Average Transaction
Customer A Plan 1
$350 / $25 = 14 Transactions Per Month
($350 * 2.25%) + (14 * .25) = $11.38
$11.38 is less then the monthly minimum of $25
$25.00 Transaction Fee + $25.00 Monthly = $50.00 Monthly

Customer A Plan 3
$350 / $25 = 14 Transactions Per Month
($350 * 3.79%) + (14 * .50) = $20.27
Annual fee prorated monthly is $4.09 a month
$20.27 Transaction Fee + $4.09 Monthly = $24.36 Monthly

Customer B Plan 1
$3000 / $25 = 120 Transactions Per Month
($3000 * 2.25%) + (120 * .25) = $97.50
$97.50 is greater then the monthly minimum of $25
$97.50 Transaction Fee + $25 Monthly = $122.50 Monthly

Customer B Plan 3
$3000 / $25 = 120 Transactions Per Month
($3000 * 3.79%) + (120 * .50) = $173.70
Annual fee prorated monthly is $4.09 a month
$173.70 Transaction Fee + 4.09 Monthly Fee = $177.79 Monthly

Your choice of plans can make a large difference in your profit margin. Take for example the above examples, Customer A would save over $25 by going with Plan 3 while Customer B would save over $50 by choosing Plan 1. Use our merchant account calculator to compare 2 different plans and find out which one is best for your business.

These fees apply to accepting Visa and/or Mastercard. For information on other methods of electronic payment click here.
 
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