We’re in the process of applying for a merchant account so we can take online payments for EasyCal. While doing so, we’ve learned a few interesting things about the kinds of charges you might face and we thought we’d share (of course, you can also take payments in person without a merchant account :) ).
A quick lesson – a payment gateway lets you take payments over the web, while a merchant account is where funds “settle” when a customer pays you. You then transfer those funds from your merchant account to your business banking account at your bank.
Also – I’ve included a free spreadsheet that can help you compare merchant account providers when you’re making a decision.
Background
We spoke to four different companies in the US and Canada that provide both payment gateways and merchant accounts. Only one – the company we went with – was completely up-front about their fees. The others quoted one fee on the phone, but their contract contained a bunch of other add-on fees.
Since we’re in Vancouver, Canada, we were looking for a company that would provide both US and Canadian merchant accounts.
Hopefully this is useful, but as usual, your mileage may vary – be sure to read the fine print of any contract you sign. :)
What Credit Cards?
All providers we spoke with would let us take Visa and Mastercard off the bat. American Express had a separate application process and separate fees, but all the companies we spoke with would help us apply to accept AmEx.
Setup Fees
Standard Setup Fee
Every company we spoke with charged a setup fee. These ranged from $50 to about $150.
Credit Card Registration Fee
Some companies charged another few bucks (generally about $50) as application fees for Visa and Mastercard.
Recurring Fees
Standard Monthly Fee
Every company we spoke with charged a monthly fee, ranging from $19.99 to $29.99. Seems reasonable – you let me take credit card payments, I pay you for the service.
Statement and Funding Fee
A few companies we spoke with charged about $10 per month to provide a monthly statement and to move funds from our merchant account to our regular business bank account.
Hardware Fees
Some companies required us to pay another dollar or two per month to send us a physical device so we could take credit cards in case the internet decided to take a nap. Since we’ll probably charge for EasyCal on a recurring monthly basis, it doesn’t make much sense for us to have hardware lying around but I suppose it could make a good paperweight.
Transaction Fees
Every provider had a per-transaction fee they charged us. Generally these ranged from 15c to 25c per transaction.
With a few providers, Mastercard charged another 12.5c if a non-Canadian credit card was used to buy a product from a Canadian merchant.
Percentage Fees
You pay a percentage of every transaction to your merchant account provider. The bulk of this fee is called the “discount rate” (see below). In this section I’ll detail other percentage-based fees that merchant account providers may ding you with.
I found these to be the most opaque set of fees. A few times, I got the sales reps to go through the whole fee schedule line by line and tell me exactly what these fees were for because it wasn’t clear.
A note: if you’re taking taking foreign credit cards these fees can add up.
Here are some of the fees we ran across:
Discount Rate
This is the fee you pay your merchant account provider. It’s the percentage of a sale and, especially when you’re doing a high volume of transactions, will comprise your largest payment processing cost. For example, if you sell a product for $100, and you have a 3% discount rate, you pay $3 to your merchant account provider.
Assessment Fee
I’m not sure what this is, but I was assured by multiple sales reps that this was a fee from Visa and Mastercard they were generously passing on to us. Generally this was 0.1% of the transaction.
Cross-border assessment fee
Good times being a Canadian business and taking foreign credit cards. Visa didn’t feel the need to slap its merchants with this, but Mastercard charges anywhere from 0.4% to 0.8% on any transactions made with a foreign credit card.
Non-qualification transaction fee
A “qualified” credit card is a basic Visa or Mastercard with no frills.
A non-qualified card is one that offers incentives for customers to use it; perhaps it offers air miles, or cash back, or reward points. When one of your customers pays you using a non-qualified card, Visa and Mastercard recoup the cost of having to provide that customer with air miles or cash back by charging you an additional fee. Typically this was about 1% of the transaction cost and occurs (according to sales reps) on about 25% of transactions.
Other Fees
Minimum Monthly Discount Fee
This isn’t an additional fee, but is something to be aware of when you’re starting out and transaction volumes might not be that high. This fee assures MC and Visa that they will make at least this amount from your business in discount fees. In other words, if the discount rate fees you pay MC or Visa amount to less than the minimum monthly discount fee, you pay the minimum monthly discount fee.
For example, let’s say your minimum monthly discount fee is $10. If your discount rate is 2.5% (you pay Visa and MC $2.5 for every $100 billed), you wouldn’t pay Visa $10 in discount fees until you sell $400 worth of goods and services. But Visa and MC will charge you the minimum monthly discount fee even if you don’t sell $400 worth of stuff, to make sure they’re getting their $10.
Cancellation / Deconversion Fee
Are you signing a long-term contract? Do you want to? Some providers would charge us a “deconversion” fee if we cancelled before our contract was up.
Who Did We Use?
We ended up going with Beanstream, a provider based in Victoria, BC. They had reasonable rates, transparent pricing with no hidden costs, good service, no contract, and good technical documentation (which might not be important for you).
Free Spreadsheet
I’ve published a spreadsheet that will help you compare and calculate merchant account provider feeds on Google Docs.
What Do You Think?
How about you? Do you have any more lessons about hidden merchant account fees to share?
Excellent advice for people setting up their first merchant account. One thing to add would be that once you establish your account and have some history, go back to your current processor or shop around again to lower your fees. Some of the fees and charges that are typical for new merchants can be avoided once you have a history of accepting credit cards.
that’s great advice jeff, thanks!