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Merchant Account Fees: The Most Common Defined

Merchant Account Fees: The Most Common Defined
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Whether you’re setting up a merchant account or reviewing your merchant statements, there’s a lot of terminology around merchant account fees. Below, we list and define the most common terms you’ll encounter.

Merchant Account Fees Defined

The merchant account fees you will encounter most often vary depending on the rate plan your account is setup on. If you’re on a Tiered rate plan, you’ll hear these terms often:

  • Tiers: Group Interchange fees divided into general rate tiers categorized as Qualified, Mid-Qualified and Non-Qualified. Each tier has a set rate applied to transactions that qualify for that tier.

Each tier has a sub-tier for rewards, too. For example, if a rewards credit card is keyed in, a Mid-Qualified rewards rate, which has a slightly higher rate than the Mid-Qualified tier, would apply.

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With Interchange-plus pricing, you’ll hear these two terms frequently:

  • Interchange: The wholesale rate for processing a credit card. Each card brand (Visa, MasterCard, Discover and American Express) has its own Interchange cost, which varies per card type and how the card is run. The general rule of thumb is that as risk or reward increases, the Interchange cost also goes up.
  • Discount Rate: The discount rate is the markup applied to each transaction, in addition to the Interchange cost.

If you’re partnered with a Payment Facilitator, then you’re on Flat pricing, which bundles all merchant account fees together into one standard rate. This allows you to pay the same amount for every transaction, regardless of the Interchange cost. If you’re on Flat pricing, the remaining fees listed in this post will not sound familiar to you, because you do not receive itemized merchant statements on Flat pricing.

Now, regardless of your rate plan, there are various merchant account fees you will always pay:

  • Authorization Fee: When a transaction is run, the legitimacy of the credit card — including the available credit on the card — must be assessed. This fee is applied to every attempted transaction, even if it is declined, and typically costs less than $1.00.
  • Transaction Fee: This is a general term that refers to all fees applied every time a transaction is run. It includes the percentage applied to the volume processed and the authorization fee.
  • Assessment Fees: These fees are charged by the card brands to cover network operations, price and rule setting, marketing expenses, and fraud-prevention research and development. Merchant Account Providers pass assessment fees down to their customers and list them on their monthly merchant statements. Because these merchant account fees are set by the card brands, the rates shouldn’t vary. You can expect to see a rate between 0.11% and 0.13% for Visa, MasterCard and Discover assessment fees, and 0.15% for Amex assessment fees.

There are also various “flat” merchant account fees you may run into. They vary in amount and applicability:

  • Monthly or Annual Fee: Not every merchant account is subject to a monthly or annual fee, it all depends on the provider and the rate plan your business is on. If charged, these fees cover the basic use of the provider’s service.
  • Monthly Minimum Fee: If your business doesn’t process a lot of volume, you may not reach a certain threshold in transaction fees for a given month. In this case, a monthly minimum fee is charged to cover the cost of keeping the account open with the Payment Processor.
  • Processing Commitment Fee: Some providers may waive monthly or annual fees if a business consistently processes an agreed-upon volume every month. When a month’s processing amount doesn’t meet the commitment amount, this fee is charged.
  • Statement Fee: This fee is charged to cover the printing and mailing costs for credit card statements. This fee can easily be avoided with online statements, which are typically free.
  • Payment Gateway Fee: This monthly fee is charged for using software that facilitates transactions. Some providers offer this service free of charge.

Similarly, there are incidental merchant account fees that you may be charged in certain scenarios:

  • PIN Debit Transaction Fee: This fee is charged when a debit card that requires the cardholder to enter her PIN is processed. Typically it’s a flat fee per transaction, such as $0.25, and is charged in lieu of the authorization fee.
  • Address Verification System (AVS) Fee: AVS is a $0.01 fee charged when the address or ZIP code associated with a card is verified with the card issuing bank.
  • Retrieval Request Fee: When a customer doesn’t recognize a charge on his credit card statement, he may flag it to his card issuing bank. This enlists the card issuer to investigate the transaction and request a copy of the receipt to corroborate the transaction. When the card issuing bank gets involved, providers charge a small fee to complete the request.
  • Chargeback Fee: This fee is imposed by card brands to cover the work put into the chargeback process, and is passed on to the business being hit with the chargeback.
  • Batch Fee: Every time a batch (a.k.a. a lump sum of transactions) is settled, a small fee is applied. This is often set at $0.05 or $0.10 per batch.

On top of all these fees, there is also a myriad of unethical merchant account fees that dishonest providers will charge. After reading this long list, you can see how easy it would be to overlook or not question a fee on your merchant statement. Familiarize yourself with the merchant account fees you should be paying so you’re in the know next time you review your statement or start a conversation with your provider.

Find out if you're the victim of unethical billing with our free checklist!

Are any of these fees new to you? Are you wondering if you should be paying any of the fees listed? Let us know below, we’d be happy to assist you!

Editor's Note: This post was originally published in October 2017 and has been updated for comprehensiveness and accuracy.

About Author
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Ursula Librizzi

Ursula is the sales and marketing operations manager for PayJunction. She oversees daily marketing tasks and liaises between the sales and marketing departments.

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