If you run a business, there's a good chance that you already accept credit cards. If you're new to starting a business, there are some things you should know about credit card processing that will save you a significant amount of money in the long term.
The discount rate is probably the one component of the merchant account pricing that represents the largest percentage of the fees you'll pay as a merchant. A competitive discount rate for qualified retail transactions is about 1.29% for check or debit cards and about 1.69% for regular credit cards. Internet discount rates are typically considered competitive at 2.15% to 2.25%.
Your discount rate is also based in part on what category you are placed in as a merchant. Some transaction types are considered lower risk than others. For instance, a McDonald's cheeseburger combo meal where the credit card is swiped is very low risk where a transaction for a future travel reservation done online may be a much higher risk.
Another fee charged is the per transaction fee which is typically about $.20 per transaction. These can get as low as $.15 to $.16 per transaction but it wouldn't be worth negotiating that low unless you have an incredibly low average ticket item. If you have a $10 average transaction, a $.25 per transaction would be a 2.5% effective rate. If you add a 1.5% discount rate, you'd end up with an effective rate of 4%.
If you take the same $10 transaction and could lower that per transaction fee to $.17, even with a higher discount rate, say around 1.8%, your effective rate would be 3.5% which would lower your overall effective rate on the transactions.
Business owners will typically have a monthly fee, usually in the form of a statement fee, customer service fee, or monthly account maintenance fee. This fee is usually about $10 per month.
Many merchant accounts have a monthly minimum. This is typically priced around $25 per month. What this means is that the minimum amount of discount fees will equal $25. If, for instance, a merchant processes only $1,000 per month with a discount rate of 1.29%, the discount fees would be $12.90. With a monthly minimum of $25, the effective rate would be 2.5% ($25 of $1000). Of course if the merchant processes $10,000 per month at the same discount of 1.29%, the fees would be $129, far in excess of the $25 minimum.
These are the main fees associated with any merchant account. Of course, there are more fees that will apply to certain types of accounts, such as an internet-based account or a wireless account which may have additional fees. There are also some per instance fees such as insufficient funds fee, chargeback, retrieval fees, AVS fees, batch header fees, and other misc. fees. Your sales representative should know and be able to explain any and all of these fees.
Find a good sales representative that you can trust. Your ability to establish a good working relationship with a reliable, trustworthy account manager will insure that you'll be able to keep your processing costs low for the duration of the account.
You can contact Brian through his website dedicated to providing information on ecommerce merchant accounts. He has been setting up merchant accounts for all types of businesses now since 2001. You can find more information on his website about internet merchant accounts.
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