As a small business owner, you may or may not be familiar with the basics of credit card processing, depending on whether this is your first business. There are numerous middlemen to familiarize yourself with and questions to ask yourself to ensure that you’re partnered with an ethical, honest provider.
If your business accepts credit card payments, you’ll receive monthly merchant statements that outline your processing costs in detail. This bill will come from the supplier of your merchant account but will include pass-through fees from some of the middlemen mentioned above. We also mentioned honesty because it’s common for businesses to fall victim to unethical billing practices. Most merchant statements are confusing by design, riddled with unexplained calculations and abbreviations. It’s easy for providers to mark up a little here, add an undefined fee there and make more money off your partnership.
To reduce confusion and educate small business owners, we will focus first on common, fair fees you’ll see on your merchant statements before diving into the treacherous territory of fees you shouldn’t be paying.
Common Small Business Credit Card Processing Fees
The following fees shouldn’t raise too many eyebrows unless they exceed the rate ranges, if listed.
- Monthly Fee: Many providers charge monthly fees that may be waived for high-processing businesses. These fees simply cover the use of the provider’s basic services.
- Monthly Minimum Fee: Not to be confused with the fee listed above, this fee is levied when you don’t process a sufficient volume to cover a predetermined amount in processing fees. This fee should reflect the difference in processing fees between your month’s total and the established minimum.
- Processing Commitment Fee: Similar to the monthly minimum fee, this fee may be charged by some providers if a month’s processing falls below the agreed-upon volume.
- Payment Gateway Fee: A monthly fee charged for using software that aids in the transaction process. Not all providers charge this fee.
- Statement Fee: This should be a small fee that covers the printing and mailing of your merchant statement. This fee can be avoided with most providers by opting for an electronic copy.
- AVS: If you take over-the-phone or e-commerce purchases, you should run AVS as a fraud-prevention measure. However, AVS does incur a $0.01 per-transaction fee. This is a common fee that is often inflated, so double-check your statements to determine whether your provider is increasing your AVS costs.
- Batch Fee: Every batch, or group of transactions, that’s settled may incur a small fee of $0.05 or $0.10 per batch.
- Assessment Fees: The card brands charge dues and assessment fees that get passed onto businesses. These fees should never exceed between 0.11% and 0.13% for Visa, MasterCard and Discover assessments or 0.15% for Amex. Again, this is a common pass-through fee that gets marked up by unethical providers.
Unethical Fees Small Businesses Should Know
We won’t delve into the details of all the unethical fees you should know about (but you can read about them here); instead, we’ll focus on the unethical fees you’re most likely to encounter as a small business.
- PCI Fee: Some providers charge their customers PCI fees for not being compliant with the Payment Card Industry Data Security Standards. However, it’s your provider’s job to help you become compliant and, as a new business, you shouldn’t be penalized for not knowing best practices.
- EMV Non-Compliance Fee: Some providers don’t offer EMV-certified processing terminals, but charge their customers a fee for not being compliant. This is a lose-lose for businesses that rely on their provider for their hardware.
- Auto-Renew Clause and Early Termination Fee: Understandably, you wouldn’t know to look out for this if you’ve never had a merchant account before. However, some providers pack their contracts with unsavory terms that make it incredibly painful to switch providers. Review your existing contract or look for these two terms if you’ve yet to procure a provider.
- Non-Qualified Interchange: This is a flat-out bogus fee, but it sounds legitimate doesn’t it? This fee borrows the terminology of one rate plan and applies it to another.
- Billback: If you see BB or EBB on your statements numerous times, you’re on Billback — a rate plan that is incredibly confusing and non-transparent. This is a strong indicator that your merchant statements likely don’t reflect your true processing costs (and if they do, it’s almost impossible to tell).
- Excessive Downgrades: Similarly, if you see EIRF on your statements often, you might be suffering from excessive downgrades that could be the result of AVS mismatches, batches not being settled within 48 hours, tax entered separately from the transaction total, out-of-date terminal software, or discrepancies in your settled and unsettled transaction amounts. Many of these issues could be rectified with the right guidance and equipment, but many providers would rather profit off you than correct your habits.
- Next-Day Funding Fee: Receiving your funds the day after you batch is standard, and shouldn’t result in a fee.
- Inactivity Fee: This fee may be added if you don’t take transactions within a given time frame, such as a day or two. This isn’t related to your total processing volume or fees for the month as listed above.
- Tax-Reporting Fee: Your provider is required to report your revenue, so no fee should be charged for this.
- Bank Service Fee: This is a tried-and-true example of a bogus fee that sounds legitimate because it’s so vague.
If you see any of these unethical fees in your merchant statements, we recommend that you consult your provider and ask about them. If your provider isn’t willing to remove them, it might be time to switch to an honest provider that doesn’t charge unethical fees.
Have you noticed any of these unethical fees in your small business credit card processing fees? We’d love to hear about your experiences in the comments section below.