Merchant Services

Merchant Accounts – Rates & Fees Involved in Processing Credit Cards

At some point, finding the best merchant account for your business will require you to compare rates and fees. Merchant account services vary and matching a company’s offerings to your situation will change the way you value one credit card processing service over another.

The Big Picture

Accepting credit cards affects your bottom line in both directions. The positive benefits of accepting credit cards are that they increase sales opportunities tremendously. A modern businesses can hardly function without this ability. But accepting credit card transactions also costs money. The trick is to find the merchant services account that leverages the pluses without too many minuses.

Some examples of the costs:

Real Time Solution Price (RTSP) – a one-time fee for systems that run credit cards in real time instead of holding all transactions until close of business and running them as a batch. Since immediate verification of the card is important to prevent fraud, if you take credit cards, you will want a real time solution. It is actually quite rare to find a business that doesn’t use RTSP. The old system meant “crunching” (imprinting) a credit card onto a multi-copy slip and having the customer sign it, then running a batch of slips at the end of the business day.

Gateway fee – monthly fee for electronic access (internet, phone line, other) – amounts to online processing, even if the credit card terminal is dedicated; they run the data over an Internet connection. The gateway is a critical element. When it goes down, no transactions can be run.

Monthly Minimum (MM) – how much you have to run through the gateway in sales (completed sales only). Failing to meet this monthly minimum will mean you have to pay it directly. For instance, if you estimate you will pay $100 in commission to the credit card processor a month and set your minimum there, any month where you generate less than this you will pay the difference.

Discount Rate (DR) – the percentage taken from each transaction when you process credit cards. This is the primary marketing figure used to attract your business. Remember, it has to be balanced against other factors.

Transaction Fee (TR) – sometimes called a “swipe fee,” this is charged each time a transaction occurs. Not all transactions will involve a sale (for instance, if an inquiry is made) but still have an associated fee.

Address verification fee – This is added to the transaction fee (and may be rolled in). It helps reduce fraud by adding information to the sale – the cardholder’s address (or sometimes just the zip code.) It usually applies to situations where the card is not present when the sale occurs.

Statement fee – This covers generating account statements on a monthly basis. With the advent of paperless accounting, this fee can mean simply generating the data. It may be added into a membership or “general” fee.

Some of these fees can be varied, depending on your history (previous credit card merchant account, volume, business type) and what tradeoffs you are willing to accept. For instance, if you have a great deal of smaller purchases (but still a high total volume), then you will want to get the transaction fee as low as possible – even if that means accepting a slightly higher discount rate. On the other hand, a lower total volume means you’d like your monthly minimum lower, maybe trading off the best discount rate to get this.

Why Aren’t the Rates Available?

You will find there is no easy way to compare rates across merchant account service providers. There are a few reasons for this. The first is that the industry is highly competitive. No one wants to expose all their fees and risk giving competitors an edge. Along with this is the way rates are altered depending on who’s asking. Companies want the ability to negotiate to get your business. They want a chance to sell you and most (if not all) will require that you fill out a form or talk to a service rep to find out what they are willing to offer. A flat, one-size-fits-all fee structure wouldn’t allow this.

Knowing that credit card merchant services are offered with room to negotiate works to your advantage. A solid history of steady business with no problems will make you a better “catch.” You will also find companies that offer cheap merchant services. Some of these are fishing for businesses that cannot get credit card processing for business purposes because you don’t have a good credit history, don’t do much volume or operate in a risky environment. Online processing is considered less certain because the card (and customer) is not physically present. More risk costs you more, so not running cards through credit card terminals at your store location involves higher rates.

How do I narrow the field?

Even though no one number can tell you which are the best merchant services for your situation, there is still hope. A few clear facts about your business will be enough to narrow down the options. Credit card payment processing online also adds another possibility – the third party processors. These companies operate (for a fee) as the middleman between you and what would be a traditional merchant account. Some even offer same day crediting for transactions.  In addition, make sure your merchant provider will allow you to accept mobile payments, they are not very popular right now, but they are gaining momentum in Europe and may be the next wave of technology. It may be important for your business in the near future.

One final reason that rates are not easily available is that rates are a moving target. They change periodically. Credit cards online are becoming the standard and business owners who accept credit card payments may be quick to switch processors when a better deal is offered. Published rates wouldn’t allow banks to offer deals when they want to increase their portfolio.

Some of the major institutional players in the credit card processing industry are: Merchant Warehouse, Charge.com, BA merchant services, First merchant services, Termnet merchant services, Transfirst merchant services, Spectrum merchant services, Tribul merchant services, and Verotel merchant services. Each company tries to carve out a place in the market and it can be very difficult to determine the “best overall.”