Applying for a merchant account can be a little overwhelming. You may feel that you don’t have enough experience or knowledge about the process to ask the right questions to avoid being over charged. We have created this useful guide to help you focus on the most important aspects of a merchant account as you compare providers.
What are interchange fees and how are they determined?
The bulk of the costs associated with a merchant account come from interchange fees. Interchange fees are charged from the credit card issuing bank and major associations (Visa, Master Card, Discover, etc) and represent the fixed cost that all processors are working off of. Understanding how interchange works will give you a fundamental understanding of how different price structures are setup.
What price structure will be set up for my business?
There are many different price structures that can be set up for any given business. Each one will interact with the interchange fees in a unique way. The three most popular pricing structures are:
With a tiered model the interchange fees are set at specific levels based on how the credit card being processed is qualified. The credit card processor’s mark up is built into the tier. ERR pricing sets the interchange fee at a specific level and charges a surcharge for any transaction that does not qualify. Interchange plus is the most transparent and passes the exact level of interchange directly through to the merchant’s bill. The credit card processor will add a markup on the merchant statement for the cost of the service they provide.
What can I do to make sure my credit card sales qualify for the best rate?
Remember that the bulk of your processing fee for each transaction is determined by the interchange rate the transaction qualifies for. Therefore it is very important to understand how to process your customer’s credit cards to ensure the lowest interchange fee is applied. Additionally, there is terminal software called BIN seeker that will automatically help route your transactions to the lowest level of interchange.
How will my fees be deducted from my account?
There are two settlement options that are offered by all processors. They are daily settlement and monthly settlement. With daily settlement you’re processing fee and per transaction fee will be deducted from each sale before it is deposited into your account. With monthly settlement each sale will be deposited into your account in full. Then at the end of the month the total fees for the month will be deducted from your account.
If I need equipment will it be leased or do I have the option to purchase it?
Never lease equipment. Terminal equipment can be purchased starting at $150. With a lease you will be locked into a very long term contract in which you will pay upwards of 1,500% or more of the actual cost of the equipment. Be very carful with processors that are pushing leased equipment as this is good signal that they don’t you have your interests in mind.
Is your equipment proprietary?
Proprietary equipment will only work with that specific processors network. Proprietary equipment makes it impossible for the terminal equipment to be re-programmed by another processor if your business decided to switch processors in the future. There are numerous manufactures that provide non-proprietary equipment that work will virtually all credit card processing networks.
What is the early termination fee?
Most, if not all, credit card processors with have an early termination fee written into the terms of service. It is important to understand what that fee is as you compare providers. It is also important that know that the fee is negotiable.
Is there a monthly minimum fee associated with the account?
The monthly minimum fee is the minimum amount of fees that will be charged to the account over the course of the month. As the fees for the account begin to accumulate they are deducted from the minimum. So if you have a monthly minimum fee of $25 on the account and your total fees for the month are $16.57 the remaining amount of $8.43 would be applied to ensure you met the minimum. Monthly minimum fees are completely negotiable.
What is the annual fee for the account?
Most credit card processor’s will have an annual fee associated with the merchant account. This is another fee that can typically be negotiated so be sure to ask.
What is the PCI Compliance charge?
PCI DSS (Payment Card Industry Data Security Standards) compliance has to do with how your business handles credit card information from your customers. Identity theft has become an epidemic and the credit card associations are taking security of credit card information very seriously. Most all credit card processors will have a PCI Compliance check for businesses they provide service for. Most will also have an associated fee for ensuring compliance. This is another fee that can be negotiated.