Analyzing Merchant Account Fees

In today’s time many customers do not consider a business official unless they can accept credit card payments.  But that shouldn’t be the only reason a business should consider obtaining merchant processing.  This is because being able to accept credit card payments is also convenient for them.  It allows them to get their money faster without some of the administrative fees associated with taking checks or problems with theft from a cash register drawer.

However, this is not to say that getting merchant processing doesn’t involve its own set of fees.  Why?  It’s because in order to initiate merchant processing for one’s business, an entrepreneur must get a merchant account.  This is a special account that retains any monies that are acquired through credit card transactions.  Below is a list of fees that are commonly associated with merchant accounts.

1. Initial Fees

Most merchant account will require one or several upfront fees before a person can actually get access and accept the credit card transactions.  Examples of these fees could be those associated with setup of the merchant account and/or the processing of the application.  There may also be additional one-time fees relating to the software and equipment that has to be acquired in order to get a merchant account established.  Generally speaking, some of the firms that charge little to no set up fees will charge higher fees for the equipment or higher monthly fees.  The initial fees are as important to review as the transactions fees are.

2. Monthly Fees for Accepting Credit Card Payments

Entrepreneurs may also have to pay monthly fees in order to be able to use their merchant account.  These fees typically rather small range but may be burdensome depending upon expected transaction volume.  If a customer does not like the idea of paying monthly fees, they can usually make arrangements to make just one payment at the beginning of the year.

3. Credit Card Transaction Fees

Each time a business completes a credit card transaction, they will incur two fees.  The first fee is a ‘per item’ cost that typically ranges from 20 cents to 50 cents per transaction.  This is simply a charge per transaction, regardless of size.  The second fee is called the discount rate.  This is basically a percentage of the overall purchase amount with the credit card.  It can range from 2 to 4 percent depending on the type of transaction, the method of the transaction and the credit card service employed in the transaction.

These three fees and charges are the basic costs associated with most merchant accounts.  It should be noted that very rarely are they fixed-rate.  The exact costs will vary depending on the credit card used and/or whether or not data was swiped, keyed in or phoned in.  The fees will also be predicated upon volume and a historical record of activity. 

For this reason not every business should consider investing in a merchant account.  Review your business needs and compare available programs before you leap.  If a business operates solely online, they can use a payment processor such as Paypal to handle credit card transactions.  With payment processors there are no worries of monthly fees, and the transaction fees tend to not be as expensive.  However, if a business is brick-and-mortar, they will just have to accept that merchant account fees are just a necessary part of their entrepreneurial lives and credit card processing and credit services are a necessity.  While they may seem annoying, in the long run, the increased credibility a business gets by having credit card merchant processing makes the money spent well worth it.  The benefits of credit card transactions can out weigh those of cash based transactions as well as accepting checks.

And if an entrepreneur still has doubts as to whether or not they should invest in a merchant account for their brick-and-mortar enterprise, all they have to do is put themselves in their customer’s shoes.  Would they really want to buy from a company that in the year 2009 couldn’t accept credit cards?

Tags: credit card, credit card merchant, credit card payment, credit card processing, credit card services

This entry was posted on Sunday, March 1st, 2009 at 1:24 pm and is filed under Credit Card Articles. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.