Clearing Up Merchant Account Pricing

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.

Each business owner will pay a discount rate which is a percentage of the gross volume processed. If the discount rate is 1.7%, the merchant will pay $1.70 for every $100 of volume. So, for merchants processing $10,000 or more per month, each .1% represents $10. So a discount rate of 1.3% vs. a discount rate of 1.9% will save that merchant $60 per month on just the discount alone which is an annual savings of $720. This can add up quickly, so it’s important to keep this rate low.

Your discount rate will depend on which type of merchant you are. If you’re a supermarket, for instance, you’ll pay significantly less than a website dedicated to travel reservations. You’ll also have a lower discount rate if you process mostly check cards vs. corporate cards, for instance.

You’ll also have a per transaction fee for each transaction. The lower your average ticket or average transaction, the greater percentage of the overall fees the per transaction fee represents. For instance, if your average ticket item is $10, a $.25 per transaction fee represents a 2.5% “effective rate”. If you add a traditional discount rate of 1.3% or so, your total effective rate would be 3.8% which is high, or at least higher than it could be.

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.

You will typically have a monthly fee associated with any Merchant Account. This is sometimes referred to as a customer service fee, statement fee, or monthly account maintenance fee. You shouldn’t be paying too much for this fee. It shouldn’t be more than about $10 per month.

There is also a monthly minimum that is usually charged on merchant accounts as well. This is a $25 minimum fee based on the discount rate. Any given month, the $25 worth of discount fees is charged. So, if you process $1000 per month at 1.7%, you’ll be assessed $17 worth of discount fees. If your minimum is $25, you’d pay the extra $8 worth of fees to equal the $25.

These are the primary fees that accompany each merchant account. There are several other fees that may apply depending on whether your are processing through a Wireless Terminal, an internet-based account, or mail order / telephone order.

Finding a sales rep that you can trust and work with on your account will save you significant hassles later on and will be a relationship you can leverage to make this important part of your business hassle free.

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