Part two of a two-part series explaining the basics of Merchant Accounts
What are the three basic elements that make up the cost of a credit card transaction?
The following three elements comprise the payment a business makes in accepting a credit card sale and processing it.
Number 1 — Interchange
This is the largest expense of the three cost elements by far. Every transaction navigates an interchange matrix of over 500 possible combinations of card type, business type and the particular transaction environment itself to determine this base cost. This cost can range from almost nothing to over 3%.
This expense is controlled by the card brands and the card issuers like Capital One and Citi. It's non-negotiable. However, there are software programs and tools that can ensure a business qualifies for the lowest possible cost for a given transaction.
Number 2 — Dues and Assessments
These costs cover the facilitation of the transaction by the card brand. This fee is for using the particular card brand's network. This expense is also non-negotiable but it is a very small portion of the overall cost.
Number 3 — Merchant acquirers like Qualpay
The acquirer cost varies by the acquirer itself, the industry category of your business, chargeback rates and the average size of a transaction. This cost includes customer service, reporting, sales costs, chargeback management, gateway usage and the terminal and point-of-sale devices a business operates.
It pays to learn exactly how each of these three elements affects your total payment.
The key to understanding how these three elements affect what you ultimately pay begins by closely analyzing your card statements to see exactly where and how your money is being spent through these three payment cost elements.
For example, you might notice that you are paying more for the merchant acquirer portion of the three basic cost elements than necessary. The fact is merchant acquirers—also called processors—are not the same, especially when it comes to the fees they charge. It's important to research the fee structure of any and all processors with whom you are considering partnering.
Processors also differ in their ability to optimize the transaction payment process such that you always pay the lowest amount for which you qualify. Qualpay is a processor that has the technology to make this possible. Many others don't.
What are the fees associated with a merchant account?
We admit it—credit card processing involves a lot of fees. It's almost as bad as the airlines.
Almost.
But again, it is essential to understand that as far as merchant account providers go, the type of fees that are charged can differ quite dramatically from one processor to another. Qualpay, for example, does not charge a lot of the fees that other processors do.
Also the exact amount charged for a particular fee can vary quite a bit. One processor might charge a high monthly fee. Another might charge a very low monthly fee. This is why it is so important to closely analyze your credit card statements so you are never paying more than you have to.
Now let's take a deep breath and look at each of these fees:
Setup Fees
Some merchant account providers charge an initial setup fee when you first establish your merchant account. This fee covers the administrative costs of creating your account.
What Can You Do—Find a merchant account provider that charges a low or no startup fee.
Monthly or Annual Fees
Many merchant accounts have ongoing monthly or annual fees. These fees cover the cost of maintaining your account and providing access to payment processing services.
What Can You Do—Comparison shop. Fees vary. Some merchant accounts don't even charge these fees. Like Qualpay. We don't have monthly or annual fees.
Transaction Fees
These fees are charged for each payment processed through your merchant account. There are two basic types:
1. Per-Transaction Fee—This is a fixed fee charged for each individual transaction regardless of the transaction amount.
2. Percentage Fee—Also called the Discount Rate, this is a percentage amount that is charged as a fee. For example, if the discount rate is 2.5% and you process a $100 transaction, you would pay $2.50.
What Can You Do—Determine which fee structure saves you the most money in the long run.
Interchange Fees
An interchange fee is paid to card-issuing banks and the card brand networks for processing card transactions. These fees are set by the card networks and are typically a percentage of the transaction amount plus a small fee.
What Can You Do—You might consider not accepting the card brand with the highest interchange fee.
Monthly Minimum Fee
Some providers require businesses to meet a minimum monthly transaction volume. If you don't meet this threshold, you may be charged a monthly minimum fee to make up the difference.
What Can You Do—Again, comparison shop. Find a provider with low or no Monthly Minimumsdoesn't charge this fee.
Statement Fee
This fee covers the cost of providing you with monthly statements that detail your transaction history and fees. It may include access to online reporting tools.
What Can You Do—Determine what kind of reporting help you need. If you need a lot of help, this fee may be worth it in time saved.
PCI Compliance Fees
Merchants are required to maintain Payment Card Industry Data Security Standard (PCI DSS) compliance to protect customer data. Some merchant account providers charge fees related to PCI compliance, such as for security assessments or scans.
What Can You Do—Learn which providers offer low or no PCI compliance.
Chargeback Fees
If a customer disputes a transaction and initiates a chargeback, you may be charged a fee for each chargeback occurrence. Chargebacks can result in the reversal of a transaction and the return of the funds to the customer.
What Can You Do—Chargebacks can be very costly. It's best to do everything you can to avoid them.
Gateway Fees
If you use an online payment gateway to process transactions on your website, you can be charged gateway fees. These fees are separate from your merchant account fees.
What You Can Do—Look for a processor with an integrated gateway that can reduce and sometimes eliminate this fee. Qualpay has such an integrated gateway.
Early Termination Fees
Some providers may impose fees if you decide to terminate your merchant account before the end of your contract term.
What You Can Do—Don't partner with a processor with reduced early termination fees.
Additional Service Fees
Depending on your merchant account provider and the services you require, you may encounter additional fees for services like virtual terminals, recurring billing or fraud prevention tools.
What You Can Do—A top-of-the-line processor tries to keep these kinds of fees to a minimum. Go with one that appreciates your business and does not pile on such fees.
Fee, fi, fo, fum! Enough with the fees!
About Qualpay
Qualpay is a fully-integrated payments platform that utilizes the most up-to-date technology to reduce costs and streamline back-office operations. Its comprehensive system addresses and resolves the payment challenges businesses face, ensuring a stronger, more robust infrastructure that allows companies to focus on growing their business. Qualpay's reporting intelligence and data analytics allow customers to quickly and efficiently manage their payment finances, saving them both time and money. Simply put, Qualpay provides a better way to manage payments. For more information, please visit www.qualpay.com.
