Rates & Fees

It may seem like there are endless rates and fees involved in processing credit cards. In reality many fees only apply to specific types of accounts and others only apply when an account is used improperly. Do your homework and take advantage of the resources available through MerchantCouncil.org and using your account improperly shouldn't be concern. The next section will list and define the more common merchant account rates and fees. If you have a question about one of the fees, please contact us and let us know.

The following is a list of rates and fees commonly associated with all types of merchant accounts. Feel free to print or bookmark this list so that you can reference it quickly.

When working providers to tailor quotes to fit your needs, remember that it's unrealistic to expect that you will be able to have a provider lower EVERY fee to the bare minimum. Instead of trying to get every fee lowered concentrate instead on adjusting fees that matter most to your business.

For instance, if your business is seasonal you will want to have the monthly statement fee and monthly minimum fee lowered so that you don't have to pay them off-season. In order to have these fees lowered you may have to allow the provider to leave the discount rates and transaction fees where they are.

Please note that this list is comprehensive and not all providers will charge every fee listed. The following fees are listed in alphabetical order.

• Account Maintenance Fee - The account Maintenance fee is charged by the provider to perform changes to the merchant account after it has been set up. Changing address information, banking information, and business name would all be considered account maintenance tasks and may incur an account maintenance fee.
• ACH Reject Fee - An ACH reject fee is charged when a processor tries to electronically withdraw fees for processing services and there is an insufficient balance in the merchant's account. The merchant bank (your bank) rejects the processors ACH draft request and the processor charges an ACH reject fee for their troubles. An ACH reject fee is very similar to a returned check fee that is charged by a bank when a check is written against an account with insufficient funds.
• Annual Fee - An annual fee is a yearly flat fee charged to maintain a merchant account.
• Application Fee - An application fee is charged to process the merchant account application paperwork.
• Authorization Fee - An authorization fee is charged when credit card processing equipment obtains an authorization for a transaction.
• AVS Fee (Address Verification Service) - The AVS fee is charged when a credit card transaction is processed and the customer's billing address and zip code are entered into the credit card equipment. The billing information provided is compared to the information on file at the issuing bank and a "Y" (or similar positive code) is returned if the addresses match and an "N" (or similar negative code) is returned if the addresses don't match. The fee that is charged to perform this service is called an AVS fee.
• Batch Header Fee - A batch header fee is charged when a batch of credit card authorizations is sent to the processor for settlement. Every time a merchant clears their batch they will be charged a batch header fee.
• Cancellation Fee - A cancellation fee is charged when a merchant terminates their merchant account with the processor or merchant service provider. The cancellation fee may or may not be governed by time constraints, meaning that it may be waived after an account remains open for a certain amount of time.
• Change Fee - A change fee is very similar to an account maintenance fee and is charged when changes need to be made to an existing merchant account. For instance, a request made by a merchant to have banking information changed on an existing merchant account may incur a change fee.
• Chargeback Fee - A chargeback fee is charged when a customer issues a chargeback against a merchant. Chargeback fees are usually charged regardless of whether or not a merchant wins the chargeback dispute.
• Debit Network Fee - A debit network fee is usually charged on a monthly basis to allow a merchant access to the various debit card networks.
• Discount Rate - The discount rate is the percentage of a transaction that is charged as a processing fee. Discount rates often account for the majority of fees on a merchant statement and they are also the most unpredictable and complicated of all fees. The next section is dedicated entirely to the important topic of discount rates.
  Qualified Discount
  Mid-Qualified Discount
  Non-Qualified Discount
• Early Termination Fee - An early termination fee is charged when a merchant terminates their merchant account prior to the expiration date declared in their merchant processing agreement (MPA). For instance, a merchant will incur an early cancellation fee if they sign a three-year merchant account contract and cancel the merchant account two years later. Some merchant accounts have a prorated early termination fee schedule where the termination fee is decreased the longer an account remains open.
• Gateway Fee - A gateway fee is a monthly fee that is charged to gain access to an online payment processing gateway.
• Help Desk Fee - The help desk fee is a fee that is charged for customer service related issues. The help desk fee is charged when a merchant calls the processor or merchant service provider for assistance with their merchant account.
• Monthly Minimum - A monthly minimum is the lowest amount of fees that a processor will charge in a monthly period. If a merchant does not meet the monthly minimum amount in any given month they will incur an additional charge that is equal to the difference between the actual fees on their merchant account and the monthly minimum amount. For instance, a merchant would have to pay an additional $10 in a month where the fees on their account totaled $15 and their monthly minimum is set at $25.
• Over Limit Fee - An over limit fee is expressed as a percentage of sales that will be charged if a merchant processes in excess of the monthly processing volume that they declared in their merchant processing agreement (MPA). For instance, if a merchant declares $5,000 a month in processing volume and processes $7,000, $2,000 of their total sales are subject to an over limit fee. Over limit fees can be as much as %5.
• PIN Debit Fee - A PIN debit fee is charged when a customer pays for products or services using their debit card by entering their personal identification number (PIN) into an encrypted PIN pad.
• Reprogramming Fee - A reprogramming fee is charged when a provider reprograms existing credit card processing equipment to function with a merchant account that they issue. Reprogramming fees may be charged for all processing equipment including terminals, gateways, and software.
• Reserve Account Maintenance Fee - A reserve account maintenance fee is charged when a processor must keep a rolling reserve for a merchant. Reserve Account maintenance fees are typically flat monthly fees.
• Retrieval Fee - A retrieval fee is charged when a processor notifies a merchant of a chargeback against their account, and requests that they return supporting documentation to validate the charge in question. When the merchant returns the documentation requested by the processor their account is assessed a retrieval fee.
• Return Fee - The return fee is charged when a customer's purchase is reversed and funds are restored to their account. Returns do not incur a percentage discount charge, but instead are charged a flat return fee.
• Set-up Fee - A set up fee is usually charged by a merchant service provider after the merchant account application process has been completed and the account has been approved. The provider will then charge a fee to complete the set up of the merchant account.
• Signature Debit Fee - A signature debit fee is charged when a customer uses their debit card like a credit card to pay for products or services. Instead of entering their PIN number into a keypad the customer's card is swiped through a terminal. In order for a debit card to be charged via swiping there must be a VISA or MasterCard logo on the face of the card. Debit cards that have a VISA or MasterCard logo are called check cards.
• Statement Fee - A statement fee is a flat monthly fee that is charged to facilitate the mailing of monthly merchant bankcard statements. The statement fee may be incorporated into a number of different fees such as a monthly maintenance fee, support fee, or monthly account fee. Some providers will waive the statement fee if a merchant agrees to view their monthly merchant statements online instead of receiving a paper statement.
• Transaction Fee - A transaction fee is charged every time a merchant's processing equipment contacts the processor to get or give information. The transaction fee can often piggyback other fees such as a return fee or a batch header fee.
• Voice Authorization Fee - A voice authorization fee is charged when a merchant contacts the processor via telephone to verbally authorize a credit card transaction.
• Watts Surcharge - A WATTs surcharge is charged when a credit card processing terminal is unable to contact the processor using the default telephone number and it must roll over to a toll-free number instead. Most terminals are programmed to call a local number that is routed to the processor. There is no charge for local phone service so no charge is assessed. However, if the local line is busy or otherwise inaccessible the terminal will dial the toll-free number and a WATTs surcharge will be assessed to the merchant's account.
• Wireless Service Fee - A wireless service fee is charged by a wireless carrier to provide wireless service making it possible for a merchant to process credit cards remotely. The wireless fee is usually a flat monthly fee that allows a merchant unlimited access to the wireless network.
• Wireless Transaction Fee - A wireless transaction fee is charged in addition to the merchant account transaction fee on wireless merchant accounts. The wireless transaction fee is usually charged by the wireless network provider and not by the merchant service provider.

Discount rates can vary in structure from tiered, to what is commonly referred to as 'percentage-plus', to government and corporate level pricing, and beyond. A tiered discount rate structure is by far the most common and it's the one that we will explain in this guide. If a provider feels that they can offer a more competitive service quote by utilizing another discount rate structure they should thoroughly explain the differences and the benefits of their proposed structure at that time.

The discount rate is a percentage of gross credit card sales that is charged as a fee for processing those transactions. The discount rate comprises the majority of the fees incurred by a merchant to process credit cards. The discount rate is the processing fee that is most often changed by the card associations (VISA & MasterCard) and merchant services providers. For this reason, it's very important to make sure that your discount rate remains consistent every month by checking your merchant processing statements.

Most merchant accounts function on a tiered system where qualification rates are divided into three categories called qualified, mid-qualified, and non-qualified. The qualified discount rate is the lowest obtainable rate, followed by the mid-qualified rate, and then by the non-qualified rate. Merchant service providers advertise their accounts using the qualified discount rate because it's the lowest and most appealing rate. For example, a retail merchant account may have a discount schedule that looks like this:

• Qualified Discount Rate: 1.XX%
• Mid-Qualified Discount Rate: 2.XX%
• Non-Qualified Discount Rate: 3.XX%

When a credit card transaction is raised to the higher mid or non-qualified rate it's said to have "downgraded". There are two very basic reasons why a credit card transaction will be downgraded to a higher qualification rate. The first reason has to do with the type of credit card that is being charged and the second is the method that the merchant uses to charge the card.

The first reason why credit card transactions will downgrade to a higher discount rate has to do directly with the type of credit card that is being charged. The card associations (VISA & MasterCard) have over 100 different qualification rates, called interchange qualifications, for different types of credit cards and each type of card is assigned a different qualification rate. Of course, having merchant accounts with hundreds of different rates would be very confusing so most merchant accounts are setup with three general rates.

When a transaction is processed the true qualification rate of the card being charged is rounded up to the next closest category which either mid or non-qualified depending on how the merchant account is setup by the service provider. Exactly how a credit card will qualify and into which rate category it will fall has a lot to do with the merchant service provider that governs the account. For instance, a corporate credit card may fall into the mid-qualified category when run through a merchant account that is provided by company "A", while the same exact credit card will fall into the non-qualified category when run through a merchant account that is provided by company "B".

Depending on the size of the provider and/or the agreement they have with their acquiring bank, merchant service providers have a certain degree of control over how different types of credit cards qualify under the merchant accounts that they issue and govern. If you will be accepting a lot of corporate credit cards, small business credit cards, or other types of non-personal cards, you should work with your provider to have these types of cards qualified into the best possible category.

The type of credit card that will run through at a qualified rate on almost all merchant accounts is a personal non-reward credit card that is issued by a United States bank. The following is a list of credit cards that are commonly charged at a mid or non-qualified rate.

• Small Business Credit Cards
• Corporate Credit Cards
• Government Credit Cards
• International Credit Cards
• Rewards Credit Cards
• Cash Back Credit Cards

The second reason why a credit card transaction will downgrade to a mid or non-qualified rate has to do with how the credit card is transacted by the merchant. Keying-In - Card-present merchant accounts are setup under the assumption that the merchant will process transactions by physically swiping credit cards through a terminal. This process is called electronic data capture. If a retail merchant keys-in a credit card transaction by entering the credit card number on the keypad of their terminal, the transaction will almost always downgrade to the non-qualified rate. It's very common for a retail business to also have an e-commerce website. Many retail businesses use their card present merchant account to process their online sales as well and they are unaware of the fact that they are paying higher fees for these transactions. In this scenario it often saves money to open a second card-not-present account for the online transactions.

Address Verification Service (AVS) - VISA requires all card-not-present transactions to be processed using AVS. VISA also requires the AVS information to match and be correct in order for transactions to run at the lowest possible rate (qualified). Any merchant that processes credit card transactions when the customer and/or the card is not present (such as an online or mail order business) must use AVS when charging VISA cards to avoiding having all VISA transactions automatically downgrade to the non-qualified rate. In order to use AVS properly the billing address of the credit card being charged must match the billing address on file for that card at the issuing bank.

When taking a credit card order collect the customer's correct billing address and zip code. Once you have this information you must enter it into your terminal, gateway, or processing software, when charging the customer's card. If the AVS information does not match, the terminal or processing equipment will let you know by displaying an "N". Please note that all processing equipment is different and you should verify processing symbols with your merchant service provider. It is recommended that you void transactions that don't show an AVS match and that you contact the customer to obtain the correct billing address. Once you have the correct billing address you may recharge the card and the transaction will fall into the qualified category.

It's not possible to know which qualification rate a credit card transaction will fall under before charging the card.

• Qualified Discount Rate - The qualified discount rate is the lowest possible percentage rate that can be charged for a credit card transaction. To maximize the number of qualified transactions be sure that you are properly charging cards per the guidelines set forth for your specific type of merchant account. These guidelines can be obtained from your merchant service provider.
• Mid-Qualified Discount Rate - The mid-qualified discount rate is the second highest discount rate.
• Non-Qualified Discount Rate - The non-qualified discount rate is the highest possible rate that can be charged for a transaction.

It's very important to keep an eye on exactly how much you are paying in mid and non-qualified fees by reading your merchant account statements every month.

Merchant service providers typically utilize two different methods for charging processing fees. After you familiarize yourself with the different ways you can contact you merchant provider and request that your fees be charged using the method that you prefer. Some providers have control over when fees are charged and others may not.

Throughout The Month (Real-Time)
The most common way that a merchant service provider charges for processing fees is to deduct the qualified discount rate from a transaction prior to depositing it in to your bank account. At the end of the month the processor will make an additional charge for all mid and non-qualified surcharge fees, as well as any flat dollar amount fees such as transaction fees, batch fees, and statement fees. Many merchants do not like this method because it makes it difficult to keep account balances and books in order.

The second method that a merchant service provider will use to charge for processing fees is to wait until the end of each month and then deduct fees in one lump-sum charge. This method carries more risk to the acquiring bank and some providers are not able to offer this option to their merchants. Third-party processors and larger independent sales offices (ISO) that assume risk for their own merchant accounts are usually able to provide this method of charging fees at their own discretion.