Taking a Closer Look at Merchant Account Fees

A merchant account allows you to complete credit, debit, payment card and other electronic funds transactions for your customers. Naturally, one major thing to be aware of when you establish a merchant account is all of the fees associated with it. Making careful comparisons of merchant services will allow you to choose the one that is going to be financially effective for your business.

It’s also imperative, as a business owner, to implement a merchant account in such a way as to be in sync with the transactions and payments that you receive and process every day. This ongoing information will help you identify areas that need some “tweaking” procedurally, whether it involves transaction errors, fraudulent activity or potential customer service problems that lead to chargebacks and refunds.

Authorization Fees

When a transaction is returned to the bank that initially issued the card, a fee is assessed against the merchant’s account. It makes no difference if the card happens to be declined at the time of the purchase, the fee still applies. Transaction fees and per-item fees differ from the authorization fees, so these fees that are also assessed by merchant services firms should be broken out separately on your statement (paper or virtual). Rather than the bank charging the fees and then passing it to the merchant, the merchant service provider charges them as part of its “middle management” role.

Statement Fee

Monthly fees, called statement fees, are also typically charged to the merchant each month. When your monthly statement arrives, it will be itemized and show all of the transactions that took place for that particular month. Minimum monthly fees are not the same as the statement fees, as they are based on levels of activity.

Minimum Monthly Fee

Almost every merchant service agreement will include a fee based on the number of transactions completed, and/or a certain dollar amount of billings. This can become an issue for the merchant if the minimum is not met each month, as this fee against the merchant account will be assessed at the same time that your billings may be insufficient. For instance, if the monthly minimum is $150, and the merchant only completes transactions that total $125 in fees, to achieve the minimum monthly amount a $25 additional fee will be applied. For some merchants, this means an additional penalty for doing an insufficient amount of business, and can wreak havoc on growth plans.

Chargeback Fees

Unfortunately, there is a dark side to merchants completing certain transactions. It’s called a chargeback. A chargeback occurs when a customer doesn’t agree with a charge to their credit or debit card. Once they have disputed it, the merchant is required to provide a refund. When a customer decides to return a product, a chargeback won’t apply because the purchase was already completed, but in the long run, having too many returns is no way to do business, and the account provider will certainly notice the activity. Merchants can jeopardize their businesses with excessive numbers of chargebacks because they are financially responsible for the money that is being returned to the issuing bank. Both MasterCard and Visa require that merchants have no more than 1% of their dollar volumes be chargebacks.

Bottom Lines, Plural

You may be able to negotiate different, lower or alternative fee arrangements, but there are some that are essentially required of all merchants, from the local convenience store to U.S. Steel. On the other hand, the larger your firm, and the more earnings potential you represent to an account provider and the involved financial institutions, the better your negotiating position will be.

Regardless of your type or size of business, researching all the fee structures at potential merchant account providers will put you in as solid a position as possible for making your decision. As you get “into a groove” with your business and your transactions, you will acquire more information with which you can possible fine-tune your operations to reduce some or all of the fees. It is essential, of course, to get any employees you have on board with your program.

It is clear from the surveys that good customer service and assiduously honest business practices dramatically reduce the number of returns and chargebacks. There are many variables to track here, but it is worth the effort in the long run as a more efficient, customer-service-oriented business will pay less in account fees. And these days, you need to take your savings where you can, and work more efficiently than ever.