Trying To Make Sense of Merchant Processing Fees

So, what’s with all the different merchant fees anyway? You may have looked at either your own card processing statement or received a quote from a provider, and it made your head spin. No need to worry though as you are not alone. From interchange fees and discount rates to auth fees and per transaction fees we all wish things could be a little simpler. There are merchant account providers that use this to their benefit and unfortunately take advantage of merchants’ inexperience in dealing with such fees. Let’s try to make sense of all this, shall we?

Why is it called a “Discount Rate” if it’s really a “fee”?

That doesn’t make sense, does it? The same wording concept applies to the waiter bringing you the “check” when it is really a bill. Also, how we drive on a parkway and park on a driveway. The discount rate, simply put, is the percentage that the merchant provider charges based on the sales volume the merchant processes. The merchant provider buys the rates from the bank and resells at an upcharge. So, the more sales a merchant has, the higher their discount fees will be. Discount rates can also vary based on the pricing structure merchants are setup with. This is one of the few rates on a merchant statement that the merchant provider has control over, as opposed to interchange rates, which we will cover next.

What is Interchange and why does it cost me more than pocket change?

Unlike the discount rate discussed above payment providers normally pass through interchange fees without any markup, sometimes processors will use a more complex tiered pricing system but that will be a topic for another day. Interchange is set directly by the card brands such as Visa, Mastercard etc. These rates can vary based on what type of card is used. Think of interchange as having a multitude of buckets, with each bucket determining the rate that is applied to the transaction. For instance, lets say the card you are about to run is a Visa Business Card that gives the holder a hefty reward for using that card, lets also say the trans you are running is a keyed transaction with the card not being present and its over one thousand dollars. This scenario makes for a much higher interchange rate based on the card issuer giving a larger kickback to the holder, the transaction is unsecure because of the card not being “present” or chipped, lastly the transaction is considered a high ticket item with a greater risk of chargeback. This scenario may fit into say bucket three (highest interchange rate) because of what’s involved with the transaction. If the EMV chip of the card was inserted into the terminal that would upgrade the security of the transaction, bump it down into bucket two hence lowering the interchange percentage. These interchange rates can be found on the card brands website and often change yearly. This is why it is important to review your statements to see what types of cards are being used, suggest pin debit to the customer when possible and avoid keyed transactions.

Per Transaction and Monthly Merchant Fees

These fees are by far the simplest to understand because they are per occurrence. Per occurrence fees to name a few cover the authorization or “auth” of the card, AVS (which stands for Address Verification Service) and batch fees. These fees normally range from five cents per occurrence to 75 cents for higher risk merchants. Let’s say that you own a convenience store, you will not have as many high ticket items as say a car repair shop, but you will run possibly as many transactions in a day as the repair shop runs in a week. That is why it is important to have a provider that knows your business and understands that for the convenience store the merchant needs to keep those per transaction fees as low as possible in order to maximize profit. Lastly always look out for not only those monthly fees but the annual fees as well. It is normal to have monthly fees sure, but there is not a need to be paying a ridiculous amount. If you are unsure of where to start get with a trustworthy provider and set up a statement review. Contact us and see what Double Helix Payment Processing can do for you!