When you run an eCommerce business, fees from your service providers can quickly erode your profit margins if you’re not careful. This is particularly true when it comes to merchant accounts. Because every sale you make requires payment processing, merchant account fees can add up fast, especially if you’re in a high-risk industry.

This begs the question: as an eCommerce business owner, how can you make sure the fees you are paying aren’t too high?

You can do your own merchant account fees comparison by checking online or even calling potential providers. Once you’re done, you can answer the “how much does a merchant account cost?” question yourself. Of course, you’ll need some information to help guide you through the process. In this article, we’ll provide you with everything you need to know about merchant account fees to make the right decision for your business.

What are merchant account fees?

As the name implies, merchant account fees are any fees charged to merchants (e.g. eCommerce businesses and other retailers) related to their payment processing and merchant accounts. Transaction fees that are applied to each transaction processed are one of the most common examples of a merchant account fee.

While that high-level definition is simple, there are plenty of different types of fees and details that can make things complex. For example, transaction fees alone use a variety of pricing models including:

• Flat-rate pricing– This is the simplest approach to fees. You’re charged a standard rate which is usually a percentage (~2-3%) or a percentage plus a fixed dollar amount (e.g. 2% plus $0.25).

• Tiered-rate pricing– The rates you are charged will vary depending on the type of card processed. For example, American Express may have a different rate than Visa. Similarly, a gift card may have a different rate than a credit card. Generally, the lower cost tiers will be cards without rewards or debit cards while the higher cost tiers will be rewards cards.

• Interchange or Interchange-Plus pricing- In this pricing model, you are charged based on a particular rate set by the credit card networks (the “interchange” ) plus a markup for your payment processor. Generally, the interchange rate is somewhere between 1.4-3.7% but can vary over time.

• Membership pricing– With this approach to transaction fees, you pay a regular membership fee (e.g. an annual fee) plus the interchange rate for each transaction.

Beyond transaction fees, there are plenty of other potential fees that fall under the “merchant account fees” category. We’ll take a closer look at these different fees in a bit. For now, just keep in mind that any transaction, processing, membership, or administrative fees charged by your payment processor, card issuer, or credit card networks are merchant account fees.

Are high-risk businesses charged different merchant account fees?

Yes.

High-risk businesses are often either outright rejected for merchant services accounts or charged higher fees than lower-risk merchants. Some reasons your business may be labeled high-risk include your industry, credit rating, and sales model (recurring billing is often considered high-risk). Once your business is deemed high-risk, traditional merchant services providers will likely charge significantly higher transaction fees or even deny you service altogether.

High-risk merchant account providers — like TailoredPay — can help high-risk businesses keep their transaction costs down and avoid other unnecessarily high merchant account fees. So, what’s a “good” rate for a high-risk business? Like most things in business “it depends”, but as a reference point, our own rates start at 2.6% + $0.15 per transaction.

Want to learn more about high-risk businesses and payment processing? Check out our What is a high-risk merchant account? article!

The big list of merchant account fees

Now that we understand the basics of merchant account fees, let’s take a look at the big list of merchant account fees you could find on your bill.

• Transaction fees– These are the most common merchant account fees. Transaction fees are unavoidable and every provider will charge them. Generally speaking, every card payment you process will incur a transaction fee.

• Interchange fee- This is usually a part of the transaction fee and is based on the interchange rate the credit card networks charge. Fees vary by network and circumstances. You can find detailed information online about the current interchange rates. For example, both Visa and Mastercard maintain detailed information on their current interchange rates on their websites.

• Processing fees– Like the interchange fee, processing fees are usually a part of your transaction fee. These fees come from your payment processor.

• Authorization Fees– These are incidental fees that occur when you need to manually verify a transaction.

• Cardmember assessment fees- These fees are usually less than 0.2% of a transaction and cover the costs for services such as fraud prevention.

• Monthly fees- A monthly fee may be charged for your payment processing services. The amount of this fee — or whether it’s charged at all — varies across providers. Be wary of providers that charge unjustifiable monthly fees.

• Annual fees– Just like monthly fees (above) but billed on a yearly basis.

• Minimum fees– Many merchant services accounts require you to process a minimum amount of transactions or volume in a given timeframe (usually 1 month). If you don’t meet that minimum requirement, you may be charged a fee.

• Statement Fees– Some providers charge a fee for paper billing statements. If your provider charges a statement fee, see if you can switch to online statements to avoid it.

• Payment gateway fees– In some cases, your merchant services account may bill a separate payment gateway fee.

• Chargeback fees– As you might expect, chargebacks are costly to payment processors and merchants. Most merchant services providers will impose a chargeback fee for every disputed transaction. To mitigate the risk of chargebacks and fraud, we recommend selecting a merchant services provider with strong chargeback mitigation support.

• PCI Non-Compliance Fee– If you’re running an eCommerce business and you’re not PCI (Payment Card Industry) compliant, you will often be charged a non-compliance fee. In many cases, your processor may have a grace period for you to become PCI compliant.

• Early termination fee– Getting out of a merchant services account can be costly as many merchant service providers charge high early termination fees. Our tips on how to get out of a merchant services account can help avoid the cost, but an ounce of prevention is worth a pound of cure! Do your research and partner with a reputable provider from the start!

• Application fee- Many merchant service account providers charge application fees, with the costs varying greatly from vendor to vendor. Be sure to do your research and understand if the application fee your vendor is proposing is justifiable.

• Setup fees- Like application fees, these can vary from vendor to vendor. Be careful not to pay excessive setup fees.

• PIN transaction fees- These fees apply to debit card transactions that use a PIN (personal identification number).

• Batch transaction fees– In many cases, if you process a large number of transactions at one time, your provider may charge you a batch transaction fee.

When to question merchant account fees

In some cases, like with transaction fees, merchant account fees are unavoidable. However, in many cases, fees can be negotiated down or waived altogether. Additionally, in other cases fees can be outright unjustifiable and a sign you should look for another provider.

How can you tell which is which? It’s more of an art than science, but by comparing rates, doing a bit of research, and using the information we’ve covered here, you can protect your business from unnecessary fees. For example, if a provider charges an “interchange plus rate” that is double what is published online, that’s a red flag. Similarly, application and setup fees are often unnecessary or negotiable.

In all cases, be sure to read the terms of your merchant services account carefully! Salespeople often won’t go out of their way to mention hidden fees, so you’ll need to be diligent to protect your business.

Want to avoid surprise fees? Choose a payment processor you can trust

The single best way to avoid unnecessary charges and surprise fees is to partner with a trusted merchant services provider. A provider with a track record for upfront rates and honest business practices can help you avoid surprises down the road.

If you’re a high-risk business looking to secure affordable payment processing with low fees and clear terms, fill out our simple online application and we’ll get back to you within 24 hours. If you have questions about high-risk merchant accounts, check out our merchant account FAQ or contact our team of experts at (888) 599-6482. At TailoredPay, we help high-risk businesses find the right payment processing solution for their unique situation. We understand that affordable and predictable pricing is vital to running a successful eCommerce business and are here to help you get it right.