Understanding Merchant Account Fees & Pricing Models

Understanding Merchant Account Fees & Pricing Models is crucial when choosing a Point-of-Sale (POS) system for your business. These fees can vary depending on whether you go with integrated payment processing (where the POS and payment processing are linked) or standalone payment processing (where you use a separate payment processor apart from your POS system). Below, I’ll explain the different pricing models, the fees you should expect, and how each option works.

1. What is a Merchant Account?

A merchant account is a type of bank account that allows your business to accept credit card and debit card payments. When you sign up for a merchant account, you also need a payment gateway (software or hardware) to securely process the card payments and facilitate the transaction. Payment processors work with these accounts to handle the authorization and transfer of funds between the customer's bank and your business account.

2. Merchant Account Fees & Pricing Models

There are different ways in which payment processors charge for merchant account services, depending on whether the payment processing is integrated with your POS system or handled separately.

Integrated Payment Processing with POS System

With integrated payment processing, your POS system and payment processing provider are part of the same service, making it easier to manage sales, transactions, and reports in one system. The payment processor is usually bundled with the POS software, but you may still have some flexibility regarding the fees.

• Transaction Fees: This is the fee charged each time a transaction is processed through the payment system. It's often a percentage of the sale, plus a small flat fee.

  • Example: Square charges 2.6% + 10¢ per swiped transaction.

  • Other POS providers like Clover or Lightspeed might have similar rates, such as 2.6% + 10¢, or a different fee structure based on the volume or type of card used (e.g., credit card vs. debit card).

• Monthly Fees: Some POS providers with integrated payment processing may charge a monthly subscription for using their system, which often includes access to hardware, software, and the payment processing service.

  • Example:

    • Square POS: No monthly fee for basic functionality, but the Square for Retail or Square for Restaurants plan costs $60 - $299/month.

    • Clover POS: Monthly fees start at $9.95 (for basic plans) but can go up to $69.95/month for advanced systems with more features.

• Setup Fees: Many POS providers with integrated payment processing offer free setup or no-cost initial installation. However, certain POS solutions might have setup fees for hardware or advanced custom configurations.

  • Example: Square offers free setup, while Clover may charge a setup fee for custom configurations or specialized hardware.

• Chargeback Fees: If a customer disputes a charge, you may be required to pay a chargeback fee (usually between $15 - $50 depending on the processor). The fee is charged by the payment processor when a transaction is reversed.

• Hardware Fees: Some POS systems require you to purchase or lease hardware, such as terminals, barcode scanners, receipt printers, etc. Some providers include hardware in their subscription plans or offer it at a discount if you commit to using their integrated payment processor.

  • Example: Square provides some free or discounted hardware when you sign up for their service, while Clover has separate fees for hardware and often bundles hardware with its POS plans.

• PCI Compliance Fees: PCI DSS compliance refers to security standards for processing payments. Some processors may charge a PCI compliance fee if your system isn’t automatically compliant. This fee is usually about $10 - $20/month.

Standalone Payment Processing Apart from POS

With standalone payment processing, your POS system and payment processor are separate. This gives you more flexibility in choosing a payment processor, but it can lead to more complexity in managing multiple systems.

• Transaction Fees: Standalone payment processors typically charge a percentage of each transaction and a flat fee. These can vary depending on the type of card (credit, debit, rewards cards, etc.) and the processor.

  • Example:

    • Stripe: 2.9% + 30¢ per transaction (for online payments).

    • PayPal: 2.9% + 30¢ for online payments, but they also charge a 2.7% fee for in-person card processing.

    • Square (as a standalone processor): Charges 2.6% + 10¢ for swiped payments, or a 3.5% + 15¢ fee for manually entered card payments.

    • Braintree: Another popular processor that charges 2.9% + 30¢ per transaction.

• Monthly Fees: Unlike integrated solutions, standalone processors typically don't have monthly fees. However, you might need to pay for other services, such as a payment gateway or virtual terminal for online payments.

  • Example: PayPal Here (mobile payments) charges a monthly fee for its advanced features, but basic mobile processing is fee-free.

• Setup Fees: Standalone processors often don’t charge setup fees for basic services. However, some may charge for advanced payment features like dedicated terminals or virtual terminals for online payments.

• Gateway Fees: If you're processing online payments or accepting cards manually (via phone or online), you'll need a payment gateway. These gateways may have additional fees (often monthly or per transaction).

  • Example: Stripe and PayPal include their gateway fees in the per-transaction fee, but some other processors may charge around $10 - $20/month for gateway access.

• Chargeback Fees: Just like integrated solutions, standalone processors charge chargeback fees if a transaction is disputed. These fees generally range from $15 - $50 per chargeback.

• PCI Compliance Fees: Some standalone processors charge an annual PCI compliance fee (usually $50 - $100), but this is less common if you're using a hosted solution like PayPal or Stripe.

• Hardware Costs: In the case of standalone processing, you'll still need a POS terminal or card reader to physically process the payments. Many standalone processors (like PayPal Here, Stripe Terminal, or Square Terminal) offer hardware at an additional cost.

  • Example: PayPal Here provides mobile card readers for around $10 - $50, while Stripe offers card readers for $59 - $299 depending on features.

3. Key Differences Between Integrated and Standalone Payment Processing

4. Recommendations Based on Your Needs

• For Simplicity and Low Maintenance: Integrated payment processing is ideal if you prefer everything bundled together in one solution. Providers like Square, Clover, and Lightspeed make it easy to manage payments, inventory, and employee data all in one place.

  • If you're a small business, Square is an excellent, low-cost solution with no monthly fees and low transaction rates.

• For Flexibility and Customization: If you want more control over payment processing or have specific needs (such as integrating with third-party tools), a standalone payment processor like Stripe or PayPal may be more suitable. These solutions often work well for businesses with higher transaction volumes or more complex needs.

  • For larger businesses or those with high online sales, Stripe offers excellent features for both in-person and online payments.

5. Budgeting for Merchant Account Fees

When budgeting for your POS and payment processing system, keep these costs in mind:

• Initial Setup Costs: $0 - $500+ (based on hardware and setup fees)

• Monthly Fees: $0 - $300+/month (depending on your POS system and features)

• Transaction Fees: 2.6% - 3.5% + 10¢ per transaction (based on sales volume)

• Additional Costs: $50 - $200+ for hardware, gateway, PCI compliance fees, etc.

Ensure to choose a POS system and payment processing plan that matches your business’s transaction volume and complexity to get the most cost-effective solution.