Merchant Accounts Rates Explained

Application/Setup fee:
$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 purchase/lease costs.
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!
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Hardware/Software:
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!
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Programming:
$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.
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Discount Rate:
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 these days.
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!
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Transaction fee:
$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.
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Monthly Minimum:
$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.
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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.
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Statement fee:
$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!
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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.
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Chargeback:
$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.
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Reserve:
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.
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Annual Fee:
$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 sign up.
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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 call.
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. joe@yahoo.com = www.yahoo.com).
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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Conclusion:

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!