The search for the perfect Payment Processing company to take care of your credit and debit card transactions may seem daunting, even more so if you don't understand the pricing structures and fees associated. We have created this guide to help you make an informed decision.
First we start by briefly introducing the players.
The Customer, either purchasing online, or at the physical location
The Merchant (you)
The Payment Gateway (for e-commerce) is the link, (or messenger) between you and the payment processor and the bank that issued the buyer’s credit card. In order for a customer to be able to buy directly from your website you need a shopping cart that is connected to a Payment Gateway via API.
Credit Card Payment Processor (Merchant Account Provider) - Facilitates the transactions between you (the merchant) and the credit card organizations and credit card issuing banks
Credit Card Organizations - Visa, MasterCard, Discovery, etc. They operate the credit card networks and set the rules.
Credit Card Issuing Banks - Also known as Member Banks, they have permission from the credit card associations to issue the credit cards to people and businesses.
To understand how payment processing works and the relationship between the players, read How Do Merchant Accounts and Payment Processing Work?
Next we will review the 3 types of fees you can expect to be charged by your Merchant Account Provider and whether they are wholesale (non-negotiable) or mark-up (negotiable).
Payment processing fees fall into the following categories;
1. Transaction Fees
2. Flat Fees
3. Incidental Fees
Transactional Fees
This is the biggest cost to you for merchant account services. This is what you are charged per transaction. Typically, this is a combination of the wholesale fees (non-negotiable) set by the cc organizations and issuing banks, and a mark-up amount set by the merchant account provider (negotiable). What to expect in terms of pricing is reviewed below.
Flat Fees
These are mark-up (negotiable) charges issued by the Merchant Account Provider. In this category you may find the following fees:
Monthly Charge, also referred to as Administration Fees, Statement Fee, Maintenance Fee or Basic Service Fee. Average cost is $10-$35 USD.
Monthly Minimum: When you set up your account your provider offers service for a fee based on expected volume. So if you are charged $12.00 for processing and your minimum expected is $25.00, you will be charged the extra $13.00.
IRS (USA) Report Fee: Often included in the Monthly Charge, this is the cost of filing your annual processing volume with the IRS. If not included in the Monthly Service Fee, then you can expect to pay $20-$35 USD.
PCI Compliance Fee: All organizations that accepts, transmits, or stores the private data of credit card customers is compliant with the various security measures outlined by the PCI Security Standard Council to ensure that the data is kept private. Merchant Account Providers often transfer this cost to the merchant. Cost is approximately $80-$120 USD annually.
Incidental Fees
These are mark-up (negotiable) charges issued by the Merchant Account Provider and cover "unforeseen" incidents as they happen. These can include:
Address Verification Fee: Around $0.00-$0.05 USD per incident
Retrieval Request Fee: First step when a charge-back is initiated by the customer. Approximately $0-$15 USD.
Charge-back Fee: If it is determined that the customer charge is to be reversed. $15-$25 USD.
Batch Fee: $0.05-$0.25 USD per batch of transactions submitted.
NSF Fee: If you don't have enough money in your account to cover your merchant fees they will demand even more money. $0.00-$25 USD per incident.
Additional Fees based on Additional Services
Credit Card Terminal Purchase $200-$400 USD
Credit Card Terminal Lease $20-$100 USD per month
"Free" Credit Card Terminal Insurance (or Warranty): If you are offered a "free" terminal you will probably be charged warranty, or insurance $80-$150 annually
Credit Card Terminal Reprogramming Fee: If your existing credit card terminal is compatible with the merchant services provider then this is often waived. $0.00-$150 USD one-time charge.
Payment Gateway (Virtual Terminal) Fee $15-$25 USD monthly
Payment Gateway Set-Up Fee $75-$100 USD one-time charge
Zero Value (Junk) Fees
Early Termination $0.00-$8000 USD. Make sure your understanding of your liabilities should you want to cancel are crystal clear.
Application Fee: Unless you are a high-risk merchant this is a ridiculous fee.
Statement Fee or online reporting fee $0.00-$25 USD monthly
Merchant Club Fee $5-$30 USD monthly. Rarely worth it (free printer paper, etc.)
Now let's look at the common pricing models so you are in a better position to negotiate the best rates for your business.
Interchange-Plus Pricing Model (generally transparent - you know what you are paying for)
Interchange Fee (example: 1.5% + $0.10 per transaction)
Set by the Credit Card Organizations and Issuing Banks
This is non-negotiable
Plus (example: 0.25% + $0.10 per transaction)
Set by the Merchant Account Provider
This is negotiable
+variable incidental fees (negotiable)
+variable flat fees (negotiable)
Tiered Pricing Model (least transparent pricing model)
In this pricing model a merchant is charged per transaction based on whether that transaction meets certain criteria.
Qualified rates (the lowest rates) are applied to debit cards and non-reward credit card transactions that are swiped or inserted as a chip.
Mid-qualified rates pertain to a membership rewards card, loyalty card, and manually keyed-in transactions.
Non-qualified rates (the highest rates) are for the corporate card, high-reward credit card, international card, and card-not-present transactions.
Qualified Rates (example: 1.75% + $0.25 per transaction)
Mid-qualified Rates (example: 2.95% + $0.35 per transaction)
Non-qualified Rates (example: 3.25% + $0.40 per transaction)
+variable incidental fees (negotiable)
+variable flat fees (negotiable)
With less transparency, you have less negotiating power. In addition, merchants tend to underestimate how many of their transactions will end up falling into the mid-qualified and non-qualified tiers. This pricing model benefits the Merchant Account Provider, not the merchant.
Blended Pricing Model
This is basically the Tiered Pricing Model minus the tiers. There is only one rate per transaction. The wholesale and mark-up interchange fees are combined . The rate per transaction is generally high (example: 2.95% + $0.35). Usually no monthly fees or flat fees. This is best for low-volume merchants.
+variable incidental (negotiable)
Subscription Pricing Model
A new pricing model that is gaining popularity for its simplicity.
Interchange rate set by Credit Card Organizations (example: 1.5% + $0.10)
Transaction fee set by Merchant Account Provider (example: $0.25)
Flat monthly service fee (example: $25)
+variable incidental fees (negotiable)
We hope that this article has given you a head start in finding the Merchant Services Provider that is right for your business and your bottom line.
PointOfSalePOS.com understands that POS Systems and Payment Processing are not a one-size-fits-all solution, just like your business is not like everyone else's. No matter the size or industry of your business we want to help you succeed. PointOfSalePOS.com has the expertise and experience to answer your questions and support you in this process. We take care of your POS System, so you can take care of your customers.