Washington State University

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Credit Card Rates and Fees
 
Merchant Accounts are subject to a variety of fees, some periodic, others charged on a per-item or percentage basis. Some fees are set by the merchant account provider, but the majority of the per-item and percentage fees are passed through to the merchant account according to a schedule of rates that are set by Visa and MasterCard. Click here to view a PowerPoint presentation of how a credit card is processed.
 
 
ACH/Batch Fee: Some processors charge this fee to a merchant whenever the merchant "settles" their terminal. Settling a terminal, also known as "batching", occurs when a merchant sends their completed transactions for the day to their acquiring bank for payment. IF there are no transactions on a particular day, the fee is not charged. This fee can range from 5 to 50 cents. It is important to close a batch every 24 hours or a higher rate will be assessed by Visa or MasterCard.
 
Address Verification Service (AVS) Fee:  This fee only applies to merchants who key in credit card transactions. It is usually 5 to 10 cents and may be included in the transaction fees above or as a separate line item. AVS helps reduce fraud by providing address and zip-code verification on the credit cardholder. AVS is mandatory on all Visa and MasterCard transactions and on all keyed transactions where the card is not present.
 
Annual Fee: This is the annual amount that is charged for the merchant account by the processor. Some providers charge it while others do not.
 
Application / Set Up Fee:  This may be charged when a merchant account is setup, but is no longer a common practice and most providers do not charge it.
 
Cancellation / Termination fee: Most merchant accounts have some sort of cancellation or termination fee. There is significant cost in setting up and maintaining a merchant account for a business, and this fee helps recoup some of the losses should a merchant cancel, especially in the beginning. However, most providers are willing to reduce or eliminate this fee should there be unresolved problems or issues. The cancellation fee should be a fixed amount. Be aware that some providers want to charge a variable cancellation fee (for example, the number of months left on the merchant contract term times the average fees the merchant has have been paying each month). Under such a scenario a merchant could be liable for thousands of dollars.
 
Chargeback / Retrieval Fee: Chargeback’s and retrieval fees are related to a customer or issuing bank disputing a transaction that was processed. The merchant who charged the transaction is notified of the dispute via postal mail, email, fax, or a combination. Common reasons for a customer disputing a charge are: the customer doesn't recognize the charge, the product or service was not as described, or someone fraudulently used the customer’s credit card. A merchant will have a chance to refute the dispute by providing a written response and documentation. The cost for a chargeback is usually around $25. This is a reasonable fee that the merchant account provider charges for handling the dispute.
 
Customer Service/Maintenance/Monthly Statement Fee:  This monthly fee is charged by the processor or merchant service provider and is a fixed fee, regardless of the number of transactions.   This fee pays for a monthly paper statement as well as any 800 toll free customer assistance/support needed on the merchant account. Usually this fee is around $10 per month but can be as high as $15 or $25.
 
Discount Rate: The discount rate, also called the interchange fee, makes up the majority of merchant account costs. It is usually lower if the merchant has the card present and is swiping the card and higher if the merchant is keying the credit card information in for MOTO, Internet, or other card-not-present transactions.
 
Hidden / Junk Fees:  There are plenty of hidden and bogus fees out there to be aware of. A common hidden fee is for a merchant account provider to offer an extremely low, teaser rate initially that goes up after a few months of processing. It's usually buried in the agreement allowing the provider to raise the discount rate at will, or when you do not meet certain volume targets. Another tactic is to have a teaser rate that only applies to one specific card type in one specific category, and then charge higher rates on other cards and categories. Junk fees have many names: file fee, security fee, audit fee, conversion fee, over the limit fee, excessive transactions fees, discount rate fees charged on refunds, and bill back fees.
 
Interchange Fee: Fee paid between banks for the acceptance of card based transactions. Usually, it is the fee that the merchant's bank (the "acquiring bank") pays a customer's bank (the "card-issuing bank"). Interchange fees are set by the credit card networks and are the largest component of the variety of fees that merchants pay for the privilege of accepting credit cards. Interchange fees have a complicated structure, based on card brand, regions or jurisdictions, type of credit or debit card, type and size of the accepting merchant, and the type of transaction (for example: online, in-store, phone order, whether the card is present). Interchange fees are typically a flat fee plus a percentage of the total purchase price (including taxes).
 
Internet Gateway Fee:  This only applies if you are using an Internet Payment Gateway and does not apply if you are using software or a terminal. The gateway fee is a monthly fee assessed by the gateway provider, and is usually billed directly by the gateway provider, although sometimes it can be billed through the merchant account provider. The gateway fee can be as high as $30 per month. Sometimes there can be an additional per-transaction fees that the gateway provider may charge. This is in addition to any transaction fees charged by your merchant account provider.
 
Monthly Minimum Fee:  A monthly minimum fee is not an extra fee but rather a minimum amount that the processor or merchant account provider requires the merchant to generate each month. IF a merchant’s monthly fees are less than this minimum, then the merchant is charged the difference up to the minimum. For example, if you have $20 in fees in a given month, and your account has a $25 monthly minimum on it, you will be charged an additional $5 to meet the monthly minimum.
 
PIN Debit Transaction Fees: These fees only apply to merchants who accept debit cards and have a PINpad attached to the credit card terminal. It is a fixed transaction fee, usually around 70 cents. However, some processors charge a low transaction fee (around 20 cents) and bill the merchant account the debit network fee, which varies depending on the debit network.
 
Reprogramming Fee: This is charged if and when a merchant needs to reprogram a piece of existing equipment or software. It does take time and effort to program terminals and software, and as a result this fee is sometimes charged by merchant providers and/or terminal or software vendors.
 
 Surcharge/ Partially-qualified/ Non-qualified Fees:  These fees can show up under any of these three names, but they are all essentially the same thing. These fees are all related to an additional discount fee that some cards are charged, and only apply to certain card types. They do not apply to the majority of consumer cards, but they do apply to some business, corporate, rewards and international cards. In general they will range from an additional 0.5% to 2.5%.
 
Transaction Fees: The credit card processor charges a fee to process each transaction regardless of whether the transaction is approved or declined. Common transaction fees are 20 cents for swiped and 30 cents for keyed transactions. These fees can be slightly higher for wireless transactions.
 
Voice Activation Fee:  This fee is only charged when a merchant calls in a transaction to an 800 number. It is useful if the terminal or software isn't working and a credit card authorization is needed. Most merchants do not use the voice authorization service. But if it is used, the average cost per voice authorization ranges from 75 cents to $1.50 and is set by the merchant account provider.

 

 Click here to view a sample Monthly Merchant Account Statement.

 

Other Costs
 
Other costs may include hardware, software, web-hosting fees, and additional personnel to support merchant account administration.    

 

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