Many fees can be imposed on a merchant based on various rules and regulations created by the Card Associations. It is from these fees that the Merchant Services Provider, Processor, Issuing Bank and Card Associations all take portions for their services. This blog will walk you through the most common fees your organization might see on your credit card statement and inform you of what services they pay for.
Probably the most familiar fee to merchants is the quoted discount rate. The fee is paid by you (the merchant) to the Merchant Services Provider for the settlement of credit card funds into your bank account. The Discount Rate includes Interchange Fees, Communication Cost and the Authorization/AVS Fee.
Interchange Fees consist of a flat per item fee and a percentage that is charged on payment card activity that runs through the card networks. Interchange amounts are set by the Card Associations (Visa, MasterCard, Discover) and cover the costs and time associated with processing credit cards. The fee is paid by the Acquiring Bank to the Issuing Bank, essentially reimbursing the Issuing Bank for the risk of loaning out money to the cardholder until the bill is paid.
The Communication Cost is sometimes listed as separate line items (for instance a Network Access Fee), but they can be bundled into the Discount Rate. This fee is related to moving a transaction from one point to another, and covers the maintenance of toll-free phone circuits, modems for calls into the network, computer servers and Internet Protocols (IPs), etc. Typically, these fees are paid to the Processor by the Acquiring Bank.
The Authorization and AVS Fee is a per item fee that covers the authorization request for each transaction. Usually this fee is listed as a separate line item on a merchant statement. An additional Address Verification Service (AVS) fee (typically $0.05 per item) accompanies any authorization that includes billing information (Address and Zip Code). This fee is far less than the downgrade (a transaction that does not qualify for the best rate) surcharge for not including the address data on mail order /telephone order (MOTO) and eCommerce transactions.
The Merchant Services Provider will often charge a monthly and/or annual account management fee, which covers the time and infrastructure needed to maintain a merchant account with the Acquirer. You may often see this fee described as a “Statement Fee” but encompasses more than just the issuing of a monthly statement.
PCI Compliance Validation/Non-Compliance Fees
The Payment Card Industry Data Security Standard (PCI DS) is a requirement of all businesses that process, store, or transmit payment card data, to prevent cardholder data theft. Most Merchant Services Providers are now requiring validation of this compliance, and the certification needs to come from a Qualified Security Assessor (QSA).
PCI Compliance Validation Fees are billed directly by the QSA, Merchant Services Provider, or the Processor and covers the validation of a Self-Assessment-Questionnaire (SAQ), and the validation is usually good for one year. Many providers are partnering with a QSA to help validate their merchants’ compliance, and in these cases the billing may go through the Merchant Services Provider. Depending on how you process your payments, you may also require network scans in addition to the SAQ, which are done quarterly by an Approved Scanning Vendor (ASV) which may or may not be the same entity as the QSA.
Non-Compliance Fees are charged by some Merchant Services Providers and/or Processors. Merchants who do not become PCI compliant potentially put their organization and customer/donor card data at risk of being compromised. A small business “card data” breach costs $36,000 or more to start, not including any fines from the Card Associations for not validating PCI compliance. When you compare the cost of validating compliance to the potential fees and penalties charged by the Card Associations for a breach, there is significant value and good stewardship in certifying PCI Compliance.
There are other fees that do not come up regularly, but could impact you under certain circumstances. Most incidentals are set by the Merchant Services Provider and reflect costs charged by the Processor or Card Associations.
Chargeback Fees are charged in response to a retrieval request from the Issuing Bank. The retrieval fee is in addition to the reversal of the transaction funds. A retrieval request can be initiated by the Issuer for various reasons, but the most common circumstance comes from a cardholder dispute on a particular charge. There is a specific time-frame for you to respond to a chargeback with proof of cardholder authorization to have the original transaction funds returned, but the chargeback fee itself usually stands regardless of the resolution of a chargeback investigation.
A Monthly Minimum Fee comes up if you have a minimum monthly amount required by your Merchant Services Provider. If your monthly fees are less than this minimum, there is a charge for the difference. Not all providers have a monthly minimum on their accounts.
A Termination Fee occurs when you close a merchant account prior to the initial contract term with the Merchant Services Provider. When you open a merchant account, there is usually a specified term in the agreement to keep the account open (3 years is common). Closing the account prior to this term can impose a fee (usually equal to the Monthly Maintenance Fee for the remaining months on the initial term), and could include any Monthly Minimums, etc. Depending on the reasons for the cancellation, the termination fee be be waived or reduced.
Other Miscellaneous Fees include things like Voice Authorizations (calling in for the authorization versus running the transaction through a physical or virtual terminal for it), Application Fees (charged by some Merchant Services Providers for handling the paperwork involved setting up a new merchant account), Reporting/Research Fees (for direct access to Processor transaction reporting, or for the Processor to pull up historical data on your behalf), etc.
Finally, we will look at Product Fees which are charged for hardware, software and services that integrate or connect to your merchant account (for example, physical terminals, online giving solutions, and camp/registration software solutions that accept card and other electronic payments). Products come from three sources: Merchant Services Providers (who have value added products they sell with their merchant accounts), Referral Partners (who usually work with specific service providers that integrate with their software solutions), or Third-Parties (who might sell terminals, online shopping carts, or other software solutions that can integrate with common Payment Gateways).
Physical Terminals and other swipe devices and hardware involve a one-time purchase (unless leased). There is not typically any additional per item fee associated other than the authorization/settlement fees from the merchant account itself; however, mobile swipe devices usually include extra monthly and/or per item fees for the payment gateway that they operate through.
Payment Gateways and other online software integrations include a setup fee, a monthly fee and a flat per item fee in addition to the normal processing fees from the merchant account. These fees usually come from a single provider, but depending on the business relationship in a partner situation, you may see billing from a software provider in addition to the Merchant Services Provider.