Merchant Account Fees: All You Need to Know

A merchant account enables your business to accept credit and debit card payments. This is a key part of payment processing. But there are merchant account fees to consider.

While these fees can seem complex, understanding each one can enable you to negotiate lower rates. This in turn saves you profit.

In this guide, we’ll run through every merchant account fee you can expect to pay. We’ll also show you how to prevent running into some of them.

What Are Merchant Account Fees?

Merchant account fees are assessed every time you accept a card payment. They’re also incurred for recurring payments and one-off charges.

Merchant account fees can be ordered as:

• Transactional fees
• Recurring fees
• Situational fees

There are a wide range of merchant account fees you can run into. To make things more complex, each provider has its own rates.

When selecting a merchant account, it’s crucial to understand its fee structure. In the worst case, merchant account fees could end up costing you more than you earn via card payments.

Merchant account sales representatives may not always be transparent when it comes to fees. So ensure you conduct research about each provider before making your decision.

Common Types of Merchant Account Fees

Let’s break down the most common types of merchant account fees you’re likely to encounter.

Transaction Fees

Transaction fees are charged by the credit card processor, banks and card associations.

Generally, the fees to process credit card transactions consist of:

• Assessment fees. These fees are paid to the relevant card associations, such as Visa or Mastercard, per transaction
• Markup fees. These fees are charged by your acquiring bank to cover interchange and assessment fees, while ensuring a profit is made
• Interchange fees. These are the fees paid to the card issuing bank per transaction. They cover the cost of transaction handling and risk. Interchange fees usually consist of a percentage of the transaction plus a fixed authorization fee

Interchange fees take up the largest percentage of credit card processing fees. They vary based on a range of factors, such as:

• Transaction type. Card-not-present (CNP) transactions have higher interchange fees than card-present (CP) transactions. This is because CNP transactions, such as online orders, carry a higher risk of fraud
• Card network. Different card networks, such as Visa, Mastercard, and American Express, charge different interchange fees
• Card type. Reward cards, such as those which earn points, airline miles or cash back, often incur higher interchange fees. Likewise, credit card transactions have higher interchange fees than debit cards, as they carry greater risk

In turn, these factors will end up affecting how much you’ll pay in transaction fees as the merchant.

Monthly/Annual Fees

Aside from transaction fees, there are recurring monthly and annual merchant account fees you can expect to pay.

Many providers charge monthly fees to maintain your merchant account. These can also come in the form of quarterly or annual fees.

Annual fees are often a type of extra fee, that can cost your business hundreds of dollars per year.

All fees should be disclosed in your account agreement, and it may be possible to change them through negotiation.

Discount Rates

The Merchant Discount Rate (MDR) is the total processing fee applied by your merchant services provider per transaction. It includes the following card processing fees:

• Interchange fees
• Assessment fees
• Markup fees

It’s usually applied as a percentage on every transaction made.

When selecting a merchant services provider, you have the option between an Interchange ++ pricing model versus a flat-rate MDR.

Interchange ++ pricing gives you a transparent overview of each individual fee every time a transaction is made. Its cost can vary depending on the interchange fee for a given type of transaction, while the markup fee is fixed.

In contrast, flat-rate MDR pricing charges a single percentage fee for all transaction types. This pricing is generally higher, as merchant account providers need to ensure they collect profit in all payment situations.

Chargeback Fees

Chargeback fees are a type of one-off, incidental fee.

You’ll be liable to pay this fee if a customer files a chargeback against your business.

A chargeback usually occurs when:

• Goods or services weren’t provided to your customer, despite payment
• A fraudulent payment was made on your customer’s card

Chargeback fees typically range between $15 to $25.

This is a merchant account fee that’s unavoidable and unpredictable. You’re bound to run into a chargeback sooner or later, after accepting many transactions.

Having strong anti-fraud protection is the first step to preventing chargebacks.

Aside from this, a good customer service team can help prevent customer inquiries from escalating into immediate chargebacks. You can also delay billing until orders have been shipped, as well as make your refund, return and cancellation policies as clear as possible.

PCI Compliance Fees

PCI compliance refers to operating in line with the security standards laid out by the Payment Card Industry Data Security Standard (PCI DSS).

All card associations require that your business is PCI-compliant, but it’s your job to maintain compliance. This can be done by filling out the Self-Assessment Questionnaire (SAQ) annually.

Merchant account providers apply both PCI compliance and non-compliance fees.

PCI compliance fees cover services such as:

• Data breach insurance
• Customer education services
• Security scanning services

Some merchant account providers don’t charge PCI compliance fees directly, and instead bundle them in the processing or monthly account fees.

Normally, PCI compliance fees average about $10 per month.

But just because you pay PCI compliance fees to your merchant account provider, doesn’t mean you’ll be compliant. You’ll still need to keep the SAQ updated. Failure to do this will result in PCI non-compliance fees.

PCI non-compliance fees will be charged on your account every month, until you make the necessary changes to become compliant again. Simply paying the fee will not mean you’ll become compliant—it’s a fine, not a service fee.

PCI non-compliance fees range between $20 to $30 per month, depending on your provider.

Additional Merchant Account Fees

There are some additional merchant account fees to consider when selecting a provider.

Setup and Application Fees

Some merchant account providers apply a fee when applying for your account. They may also charge a second fee during the set-up process.

Mostly, these types of fees are levied either on high-risk merchants, such as those with bad credit, or by providers with many other “hidden fees.”

Early Termination Fees

Early termination fees (ETFs) are applied if you try to close your account before reaching the end of your current term. These are typically applied on long-term contracts only.

If you’re not careful when reading your account agreement, and are on a long-term contract, ETFs could cost you between $200 to $600.

Statement and Reporting Fees

If you receive your statement in the mail, postage and printing costs will be transferred to you in the form of a statement fee. These can sometimes be avoided by opting for e-statements.

You can also expect to pay an IRS 1099-K tax reporting fee.

Batch Processing Fees

Some providers charge a small fee for processing mass payments. If batch transactions are processed often, fees can add up quickly.

Luckily, most merchant account providers today don’t charge for batch payment processing.

Equipment and Software Fees

If your merchant account provider offers POS terminals and a payment gateway service, these may cost you extra in fees.

If you opt to use a third-party payment gateway or POS terminal provider, you will definitely be charged extra fees, either per transaction or monthly.

Factors Influencing Merchant Account Fees

Despite the amount of merchant account fees there are, they can vary depending on a few factors.

Business Type and Industry

Your business type and the industry you work in can affect merchant account fees.

Higher risk businesses and industries tend to incur higher merchant account fees than their lower risk equivalents.

Transaction Volume and Frequency

Depending on your transaction volume and frequency, merchant account fees can vary.

For merchants processing higher volumes of transactions at a higher frequency, it’s easier to negotiate lower fees.

Payment Methods Accepted

Certain types of payment methods result in higher processing fees.

As already mentioned, credit card transactions have higher interchange fees than debit cards. Likewise, reward card transactions also result in higher processing fees.

Frequently Asked Questions

Now that we’ve covered merchant account fees in depth, here are some final FAQs that you might still be wondering the answers to.

How can I negotiate lower merchant account fees?

You can negotiate lower merchant account fees by understanding which fees are negotiable and which are non-negotiable.

Assessment and interchange fees are non-negotiable, while markup fees are negotiable.

If the dollar amount of your transactions is on the higher end, it may be worth focusing on negotiating the percentage mark up. The bigger the transaction size, the more you’ll save.

If, on the other hand, your transaction size is smaller, you may focus on negotiating the fixed fee downward.

Likewise, many “junk fees”, which provide little value but eat into your profits, can be negotiated. For example, annual, batch and monthly minimum fees may be negotiated.

The more sales you make and revenue you earn, the stronger your negotiation power. Similarly, few chargebacks and a good credit history can all increase your negotiation power.

Are there hidden fees associated with merchant accounts?

Technically, all merchant account fees should be disclosed in your account contract.

Sometimes, merchant account sales representatives fail to mention every fee you’ll run into. And if you combine this with not reading your contract carefully enough, you’ll end up thinking merchant accounts have hidden fees.

While merchant account fees can be complex, there are no hidden fees involved—you just need to know what to expect.

Do merchant account fees vary by payment processor?

Yes, merchant account fees vary by payment processor.

Every processor is free to set their own rates and pricing model. Likewise, you as the merchant can negotiate custom fees with your processor.

That said, fees tend to be in a similar range for all providers.

Conclusion

Overall, merchant account fees are no simple business. While there are no hidden fees, understanding and predicting all the ones you might run into is a difficult task.

Keep in mind that transaction fees consist of multiple smaller fees, from assessment fees to markup and interchange fees.

Similarly, recurring fees, such as monthly fees, as well as one-off incidental fees, such as chargebacks, can easily lose you profit if you fail to read your contract carefully.

When selecting a provider, it’s important to find a balance between cost efficiency and quality of services provided. Focusing on one at the expense of the other will hinder the success of your business.

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