Merchant Account Fees: A Guide to Dollars and Sense

Merchant Account Fees: A Guide to Dollars and Sense

Lately, we’ve noticed a lot of confusion surrounding merchant account fees. Trying to understand how merchant account fees are calculated often leaves business owners with more questions than they started with.

How do merchant services providers determine account fees? How do credit card associations charge for transactions? How can I get a fair rate for my merchant account?

But merchant account fees don’t need to be so confusing. Whether you’re shopping around for the best rates, considering changing merchant services providers, or want to set up a merchant account for the first time, this guide can help. We’ll look at what merchant account fees entail, different pricing structures merchant services providers (MSPs) might offer, and how to keep your fees low.

What Are Merchant Account Fees?

Merchant account fees are the costs associated with creating and operating a merchant account. Depending on the account fee structure, this might include transaction fees, chargeback fees, equipment rental fees, or even a single flat rate that covers everything.

Many variables play into the actual cost of payment processing services. This includes factors like how customers make payments (including the type of credit card; online or in person; loyalty program rewards; etc.), what types of payment processing hardware or software you use, and what other merchant services your business requires.

For instance, if you’re setting up an eCommerce merchant account, you’ll need a payment gateway so that customers buy online. If you operate a brick-and-mortar store, you may want to collect mobile payments in addition to credit and debit cards. Furthermore, if you plan to accept customer orders over the phone, you’ll need a virtual terminal that allows you to process transactions without the card present.

Pricing Models: 3 Ways MSPs Charge Merchant Account Fees

Different MSPs offer different pricing plans for merchant account fees. There are three basic pricing models for merchant account fees: flat-rate, tiered, and interchange.

3 Ways MSP's Structure Merchant Account Fees

1. Flat-Rate Pricing

A flat-rate pricing plan allows you to pay a standard subscription fee for all your payment processing needs. The biggest benefit is that flat-rate pricing makes it easy to budget and forecast your financials.

However, despite the convenience of flat-rate pricing, this model doesn’t guarantee you’ll get the best deal on merchant services—especially since you can’t see how individual costs breakdown or how much your MSP is charging on top of standard credit card fees.

2. Tiered Pricing

Tiered pricing plans make it slightly harder to predict your monthly costs—but often your costs are lower than they would be fixed-rate pricing.

On a tiered pricing plan, you’re charged different transaction rates based on the type of card a customer uses. Each card association has its own set of fees, so your merchant account fees depend on which cards you accept and which type of card your customers use most often. This applies to different credit cards (including Mastercard, Visa, AMEX), as well as gift cards and loyalty rewards.

Depending on the type of card and how the payment is processed, transactions fall under one of three pricing tiers: qualified, mid-qualified, and non-qualified tiers. The fees associated with these tiers cover two things:

  • The interchange rate set by the credit card companies; and
  • The transaction cost charged by your MSP.

However, the tiered pricing model is not the most budget-friendly option because each tier covers a range of interchange rates—which means you could unwittingly end up paying high margins on every purchase.

3. Interchange Plus Pricing

Dynamic interchange plus pricing is similar to the tiered model, but with one important distinction. Interchange plus pricing provides an opportunity for more competitive rates, which can save you money on every credit card transaction.

Here’s why:

Rather than grouping transactions into tiers, the cost of processing each transaction is calculated individually. This protects merchants against unnecessarily high margins.

As with tiered pricing, the interchange rate is set by the credit card associations. For every card transaction processed, an MSP collects this fee from the merchant and then pays it back to the card-issuing bank.

However, unliked tiered pricing, interchange plus pricing passes wholesale interchange rates and savings on to merchants. You can see exactly how much of a markup your MSP charges per transaction, which makes the interchange plus pricing model an ideal option for the majority of merchants.

How to Get the Best Deal on Merchant Account Fees

Work with an All-In-One Provider

Save time and effort by bundling services with a full-service MSP

An all-in-one MSP offers more value than working with several different providers. You can save time and effort by partnering with a full-service MSP that can bundle all of your merchant services together.

For instance, merchant accounts and payment gateways are two separate but very critical services for online sales—so the simplest solution is often to find a partner that can reliably manage both. Not only does partnering with an MSP that can bundle these services together streamline your payment processing relationship, but it can also save you money.

When choosing a merchant services provider, consider looking for a provider that can offer all of the following services and solutions:

  • A secure payment gateway for online sales;
  • A modern POS system;
  • A dedicated merchant account; and
  • Reliable customer support.

Ask About Added Fees Upfront

Don’t get slapped with hidden fees or surprise charges on your first bill. Make sure your MSP knows that you’ve done your research and will only work with them if they guarantee full transparency regarding their pricing model.

To ensure you get the full picture from the start, ask about whether there are any sign-up fees (including installation and onboarding), monthly or annual fees, equipment rental fees, or penalties based on transaction value or volume. Clarify the contract length and whether there are cancellation fees for terminating your agreement early.

Steer Clear of High Minimum Reserve Balances

High minimum reserves make it difficult to reinvest in your business

Some payment processors require you to maintain a minimum reserve balance in your merchant account. While this isn’t a fee per se, it certainly has a big impact on your cash flow.

Businesses deemed “high-risk” are often required to maintain particularly high reserve balances to protect the payment processor. Unfortunately, the higher your minimum reserve balance, the less cash you have available to manage and reinvest in your business.

Protect Your Business from the Risk of Chargebacks

A chargeback occurs when a customer disputes a purchase made with their card (such as in the case of fraud or card theft. When a chargeback occurs, the merchant must pay back the value of the purchase (which means less revenue) as well as a separate chargeback processing fee (which means higher costs).

The good news is, you can reduce your merchant account fees and protect your reputation by preventing chargebacks. A full-service MSP like GetPayment can monitor your account and alert you as soon as a dispute is initiated—which gives you a chance to address and resolve credit card disputes before they become chargebacks. This allows you to avoid chargeback fees and prevent lost revenue.

Get a Custom Merchant Solution

There’s no perfect one-size-fits-all payment processing solution. Every business has its own goals and service needs. Your merchant services provider should offer custom payment solutions that serve your best interests without breaking the bank.

Whether that means offering deep integrations with your eCommerce platform or providing next-day funding so you can grow your business more quickly, make sure your payment processing partner is willing to create a custom solution perfectly tailored to your business.

Partner with an MSP that Guarantees Transparent Merchant Account Fees

By choosing a reliable merchant services provider that offers transparent flat-rate pricing, you can protect your business against unforeseen costs and hidden fees.

GetPayment will assess your unique business needs and provide a solution tailored to your specific goals and budget. We’re always upfront about our pricing and will work with you to find the right merchant services to keep fees reasonable while also ensuring the high level of service, security, and protection you need.

Looking to partner with an MSP that can support your business with a custom payment processing solution with transparent pricing? Request your free merchant account analysis today!