Merchant Accounts Rates Explained
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Rates will vary from one provider to the other and are subject to
$0 - $100+ (one time fee)
Watch out here. All providers have an application fee. Some charge
it right out at the beginning, while others add it into the solution
Note: Some merchant account providers heavily promote no
application fee, only to find out during the application process
that there is a setup or lease fee, so be aware. I suggest you email
each provider with some very specific questions. We've done some
of this for you above but rates and fees may change at any time
so please do verify all charges first!
Purchase: $99 and up or Lease: $20/month and up
One important note worth mentioning here, stay away from leases
if all possible. It's always better to purchase from the beginning
than pay a lease for the next 12, 24, 36 or 48 months. (However,
I have seen purchases prices go anywhere from $189 to over $500
so again watch out here.)
Why? With a lease you'll end up paying sometimes 3 times or more
then if you would of just purchased the solution outright from the
beginning. While a $29.95 monthly lease for 48 months sounds good
in reality it isn't. Leases are very hard to get out of once started.
If your business goes under before the 48 months are up, you still
have to pay on the hardware/software costs until the last penny
has been received by the leasing company. Also, the lease fee you
see does not include your state sales tax or the amount charged
for the damage/loss waiver. If you do go for the lease, always determine
the lease's buyout clause, end of lease terms, and especially beware
of clauses that allow the lease company to continue charging you
even after the 48 months have passed (they say that you should contact
them in writing one month prior to the end of the lease, or you
can just let them keep charging you). Note: This lease fee
or purchase price does not include a Gateway Fee of around $10/month!
$0 - $100+ (one time fee)
This usually only applies to retail merchants who have changed from
one provider to another. The programming process isn't difficult
but watch out for the cost, some providers may nickel and dime you
on programming fees. Why do they charge this fee if you use your
own equipment? It's used to somewhat make up for the loss of not
selling or leasing you their equipment.
2.00% - 4.00% per transaction
This is the fixed percentage amount that is deducted from the purchase
cost. These rates are for Mail Order/Telephone Order (MOTO) and
Internet-based businesses. Between 2% and 2.5% for internet is reasonable
Non-US businesses will pay a higher discount rate closer to the
3% to 4% range.
Important Note: Don't let a few tenths of a percentage
point be the deciding factor between two providers. For example,
if Provider "A" charges 2.15% and Provider "B"
charges 2.35% you'll only save $0.20 for every $100 processed through
your merchant account. Much better is to look at all your monthly
fees and the service the provider gives you, remember this is a
long time realtionship you are entering!
$0.20 - $0.50 per transaction
In addition to the discount rate a transaction fee is also deducted
from the purchase cost. Also, just as with discount rates, transaction
fees are lower for retail businesses while slightly higher amounts
are charged for MOTO and Internet
establishments. Address Verification (AVS) may either cost an additional
fee, or may be included in the base transaction fee. The typical
transaction fee for US businesses is right around $0.30 while the
higher end of this fee is sometimes the case for Non-US businesses.
$0 - $25 per month
The fee is based on your transaction and discount rate fees from
your credit card sales each month. For instance, say your bank charged
$25 as a monthly minimum, the transaction and discount rate fees
collected by the bank must equal or go over
$25 each month. If this is the case no monthly minimum will be charged.
However, if the fees collected for that month do not meet the $25
minimum, you will then be charged the difference. Not all processors
have a monthly minimum fee, however most do.
Gateway Access fee:
$0 - $25+ per month
Since in most cases, the Secure Payment Gateway provider (e.g. Authorize.Net,
VeriSign, etc.) is a separate company from the Merchant Processor,
they charge extra fees. For every month that you are on their system,
you pay an access fee.
The usual fee to pay for gateway access is around $10.
$0 - $15 per month
The statement fee is charged because at the end of each month you
will receive a statement from your processing bank that will list
all the transactions that went through for that particular month.
It's very much like your credit card or telephone bills, only they
like to charge you for this of course!
Address Verification System (AVS):
$0 - $0.05 per transaction
The AVS service checks to see that the billing address given by
the customer matches the credit card. If you opt not to use AVS,
VISA and MasterCard will not support your transactions and will
charge you an additional 0.17% to 1.25% on those sales. Most merchant
accounts come with AVS at no extra charge. If there is a charge,
it is combined in with the per transaction fee in most cases. The
AVS service works only with US credit card holders. Currently, there
is no AVS service in place for non-US credit card holders.
$5 - $25 per instance
A chargeback occurs when the cardholder disputes a charge that they
found on their monthly credit card statement. A large number of
chargebacks can cause your merchant account to be dropped totally
and leave you in a bind when trying to
get another merchant account for your business. If this is the case
you may not be able to get another merchant account for several
years. As a merchant it is important that you take the necessary
steps to reduce and potentially eliminate the
instances of chargebacks and therefore please read the important
tips on how to avoid charge backs below.
Varies, ask the provider for details
Some providers will require you to have a reserve account where
the amount is determined by your businesses estimated sales receipts.
Usually a reserve is almost always charged to a Non-US based merchant
who is trying to obtain a merchant account. Also, businesses that
do a high volume of sales each month may be charged a reserve fee.
Otherwise, there usually isn't a charge. In most cases, the reserve
fee is used to cover for any chargebacks on the merchants account.
A reserve should be avoided if all possible.
$0 to $100 per year
Some credit card processors will charge this fee just as additional
way to pay for maintenance and system upgrades. This fee isn't always
disclosed upfront. Please ask this important question before you
Merchant Account Tips to prevent charge backs and fraud
Once you have your merchant account you will need to take necessary
precautions to avoid chargebacks and fraud. Here are some
tips to follow:
1. Collect CVC2 and CVV2 Verification Numbers
This tactic alone can not only reduce instances of chargebacks
by 26%, according to Visa, but also reduce any pass-through fees
that may be charged when a credit card order is conducted. On the
back of MasterCard, most Visa and Discover credit cards is a 3-digit
security code located right after your credit card number. Requiring
customers to give the 3-digit code acts as an additional verification
measure. American Express cards also have a similar security code
that is located on the front of the card right above the
cardholder's account number and is usually 4-digits long. Most online
payment processors support entering the security codes when processing
credit card orders. Check with your payment gateway provider (i.e.
Verisign, Authorize.Net, ECHO Inc., etc) for details.
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2. Use Address Verification System (AVS)
AVS checks to ensure the address entered on the order form matches
the address to where the cardholder's billing statements are mailed
to. People ordering products and/or services using a stolen card
number will never use the real cardholder's billing address, so
this is your chance to stop the order before it's too late. AVS
only works with orders conducted in the US. Failure to use AVS when
processing credit card transactions will always result in paying
higher credit card processing fees.
**Additional idea: credit card orders are usually processed
in a batch by the end of the day. So good practice could be to check
all sales orders in your shopping card administration area by the
afternoon maybe (depending on your time zone) and see if you can
find any suspiciuos orders. If you do see some, flag them and don't
have them processed until you've received additional identification
verification from this customer.
3. Scrutinize orders from developing foreign countries
A large percentage of fraudulent Internet purchases are made from
Indonesia, Russia, Nigeria, and other African, eastern block or
developing countries. Accept orders from such countries at your
own risk until a worldwide AVS system is developed.
My note: I would highly advice against accepting payments
from these coutries. This is an example from our own experience:
you will receive a huge order from Nigeria, buying lots of goods.
The credit card will go through because it is a valid credit card.
However, a couple weeks later you will find yourself in a predicament
of stolen credit card fraud. Apparently the card is stolen from
someone in Ohio but they are blaming you for the charges. This can
hurt your business reputation, your credit or who knows what else,
apart from all the hassle and all the charge back fees you'll incur.
So watch out!!!
**Additional idea: credit card orders are usually processed
in a batch by the end of the day(ask your merchant account provider
exactly when). So good practice could be to check all sales orders
in your shopping card administration area every afternoon (depending
on your time zone) to see if you can find any suspiciuos orders.
If you see some, flag them and don't have them processed until you've
received additional identification verification from this customer.
Also, call your Gateway payment provider and ask them not to process
orders from these countries. Be proactive here and don't wait for
disaster to happen, we've seen too many stories of this nature!
4. Let customers know what name will appear on statements
Many merchants who use 3rd Party Processing companies have run
into problems because the company name that appears on cardholder's
monthly statements is usually the name of the 3rd party processing
company and not the company name of the site the cardholder made
their purchase from. This isn't always the case, but in many cases
it is. If you use a 3rd party processor, and even if you don't,
make sure the customer knows what name will appear on their credit
card statement at the end of the month. This will help to reduce
any confusion that might would otherwise occur.
My Note: Just add this to your form as a separate check box
before they click the checkout button.
5. Handle suspicious orders accordingly
If an order seems suspicious the best way to handle the situation
is to either call or e-mail the customer and attempt to verify that
they placed the order. As a rule of thumb, if in doubt, check things
out. It may be a good idea that if a customer makes an unusually
large volume purchase from your site to follow-up with a verification
My Note: If you are really in doubt, ask the customer to
send you a copy of their drivers license for name and address verification.
Tell them you won't process the order until they do so.
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6. Watch out for orders using free e-mail addresses
Be wary of accepting orders from people who used a free e-mail
address when ordering (i.e. Hotmail, Yahoo, etc.). Tracking people
who used a free e-mail address is almost impossible, it's much easier
for them to get away then if they used their Internet Service Provider
(ISP) or their own company web site e-mail address. To check whether
an e-mail address is a freebie or not just take the part of the
address after the "@" symbol, add "www" to the
front of it and see what website it brings up (i.e. firstname.lastname@example.org
My Note: Put right in your order form the note that you won't
accept orders from freebie accounts. Also, there are such things
as disposable emails that don't exist anymore after you receive
the order. Send an email to the email address given as an extra
confirmation of the order and as a nice gesture, if the email gets
repeatedly returned by the server, you might want to think twice
about this order.
7. Signatures on delivery
If your business delivers products use a carrier that requires
a signature on delivery, and allows you to have a copy of the signature.
Retain these for your records.
My note: If using USPS, think about spending the extra money
for order receipt confirmation! Make it part of your shipping and
handling charges. Another thing to consider is that if you are selling
breakable items, to insure each package as well for the proper value.
Better safe than sorry here! There are people out there trying to
get things for free so always be aware!
8. Request fax copies of ID and credit card
As we have already mentioned before, this is good advice. You may
want to request your customer to fax a copy of both sides of their
credit card and driver's license. This tactic usually works best
in a B-to-B (business to business) sales environment. While this
is not a defense under Visa or MasterCard rules, it is yet another
way to deter fraud.
9. Posting a warning message
Taking the time to post a warning message on your order page to
those who may attempt to make a fraudulent order will greatly deter
the number of instances of fraud. Be sure to mention that IP (Internet
Protocol) addresses are being logged. IP addresses can come in handy
when locating people about fraudulent orders.
My Note: yes, do anything you can to deter people from committing
fraud, this is better than trying to handle it after it has happened.
The IP number retrieval only works if people don't use a firewall
or a router, so this again is not a guaranteed method either.
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Not one method by itself will prevent bad things from happening
but you can try to use all methods descibed above to reduce your
chances of being the victim of any kind of fraud or crime!