How Do I Understand Credit Card Processing Fees?

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1 How Do I Understand Credit Card Processing Fees? Credit card processing rates and fees are often misunderstood and confusing, so we are committed to helping you understand the various costs associated with having a merchant account and what to expect. Basically, the rates are the cost of doing business with the merchant service provider, the processor, the issuing banks and the credit card associations. Merchant service providers will often bundle the fees into a combined rate based upon a percentage of the sale plus an additional flat fee per transaction. In addition, merchant account rates vary depending on the type of business: ecommerce, retail, Internet, mail order, telephone order or wireless transaction. The rate charged for each transaction depends on how it was processed in person, online, or by phone. The following is a list of the various rates and fees a merchant should expect when processing credit/debit cards.

2 Discount Rate The discount rate is the primary expense involved with credit card processing. The discount rate is what you pay your merchant service provider for processing credit and debit card transactions and depositing of funds into your account. The fee is based on how the transaction is sent and the type of merchant account you have. Usually stated as a percentage of the total bill plus a flat cost per transaction, this fee covers the costs and time associated with getting funds to your merchant bank and the billing information to the issuing bank. There are several factors which contribute to the discount rate that are beyond the merchant service provider s control. The first is called interchange, which is the amount the issuing bank (the bank that issued the credit card to the cardholder) charges per transaction. The next is dues and assessments. These are various fees charged by the actual credit card company themselves (such as Visa, MasterCard, American Express, Discover, etc). Lastly, there is the provider s markup which covers the merchant services cost of doing business. Transaction Fees Transaction Fees are the basic cost of processing a credit card transaction. These fees apply whether or not the sale is approved and vary depending on the type of transaction it is. For instance, the transaction fee for a swiped transaction (or card present) is lower than the fee for a transaction where the card is not present (CNP). This is due to the heightened risk of fraud associated with card not present transactions. To keep your costs low, process your transactions at the qualified rate whenever possible. Qualified rate is the percentage that s charged whenever a merchant accepts and processes a transaction with the card present, using an approved processing solution. This is usually the lowest rate you can receive, and often the one quoted to a merchant inquiring about rates. Mid-qualified rate is the percentage that s charged whenever a merchant accepts and processes a card that does not qualify for the lowest rate. This may happen when a card is manually keyed into a terminal versus being swiped, address verification isn t performed, information is missing, or the authorization is not settled within the allotted time frame (usually 48 hours). Non-qualified rate is the percentage that s charged whenever a merchant accepts and processes a card that does not qualify for either of the lower rates or when a rewards or business card is being used.

3 Downgrade Fee A downgrade occurs when one or more of your qualifying requirements have not been met, thus increasing your risk exposure. The higher the risk, the more you will have to pay to the merchant service provider and the other players to process that particular transaction. A large portion of the costs associated with accepting credit cards stems from the transactions that do not qualify for a discount because they don't meet the data content or transmission timing regulations set out by the card associations. Some of the more common reasons for a downgrade include not settling the transaction within 2 days of your initial authorization, missing or invalid data, corrupted swiped data, and the absence of address verification on manually keyed transactions. Debit Transaction/PIN Based Fees These apply only to debit cards and are charged whenever a personal identification number (PIN) is entered. Although this is usually a fixed fee, some providers will charge a lower transaction fee but then tack on the debit network fee, which varies depending on the network. Address Verification Service (AVS) This is charged for looking up the address and zip code information on each cardholder. Visa and MasterCard have made it a mandatory requirement for all transactions where the cardholder and card are not present, you are required to verify the cardholder's address to qualify for the discount rate since it reduces the risk of fraud. All processors charge a flat fee per transaction for this verification that is either listed separately or bundled with your rate. Automated Clearing House (ACH) Fee, aka the daily batch fee This is charged to settle each day s account transactions and to transfer the funds into your bank account. Internet Gateway Fee This is charged to companies that conduct business through a website as a secure online payment gateway is required to safely process the transactions. Application/Setup Fee This is a charge to initially set up the account; however, this fee is usually no longer charged anymore.

4 Reprogramming Fee This is charged when existing hardware or software needs to be reprogrammed by the merchant service provider, software vendor or terminal vendor. Monthly Minimum Fee This is the minimum amount that a merchant service provider requires the business to generate each month. Basically, if the monthly fee is less than the minimum amount, the merchant is charged the difference. Monthly Statement or Service Fee This is charged by your merchant service provider or processor for their service. It is a fixed fee, regardless of transactions processed, which typically includes customer service and assistance for your account. Chargeback Fee This applies if either the cardholder, or the cardholder s issuing bank, disputes a charge. The cardholder has up to 60 days from the statement date to dispute a charge. When the cardholder files a complaint with the issuing bank, you will receive a retrieval request, which can cost you from $10 to $50. If you do not respond in what your provider deems a timely manner, you may also be charged a timeliness fee or lose the transaction completely. When a refund is issued, you will often lose the interchange fee you paid on the original transaction as well as the sale. Voice Authorization Fee This is charged if your transaction is called in for processing to a toll free number. Surcharge Fees (also called Partially-Qualified or Non-Qualified) This applies to each specific types of credit cards, such as business cards, corporate cards, international cards and reward cards. Annual Fee This is charged for the account by your merchant service processor.

5 Cancellation or Termination Fee This is a fee almost all merchant service providers charge if a merchant cancels an account before the actual contract date ends. Terms may vary greatly across different providers, so it is important to understand whatever your obligation is when signing the agreement. EPS is an extremely unique merchant service provider as it does not incorporate cancellation/termination fees. We prefer to keep our merchants so happy and satisfied that they don t want to leave us. Hidden/Junk Fees These are abundant and should be avoided at all costs. Included in this category are low Teaser rates that shoot up shortly after the merchant account is opened. Oftentimes these junk fees are related to your discount rate or volume targets. Other hidden fees to watch out for are file fee, security fee, audit fee, conversion fee, over-limit fee, excessive transactions fee and bill-back fee. EPS prides itself on being transparent and upfront about the fees associated with a merchant account. Discover the value of EPS for yourself and know what to expect from your merchant service provider. EPS is one of the largest, privately held merchant service providers of electronic payment products and services to businesses and independent sales organizations. Uniquely positioned in the payments industry, EPS offers complete merchant processing solutions and expertise to drive revenue and profitability for all business types from mom and pop s, restaurants, service industries and retailers. Its vast portfolio of products includes point-of-sale terminals, e-commerce systems, mobile applications, check verification, gift cards, loyalty programs and cash advance services in addition to their revolutionary EPS 90 program, a check guaranty and conversion service offering a 90-day, no credit check, in-house payment plan. The company is headquartered in Englewood, CO. For more information, call or visit Follow EPS on Twitter at and like us on Facebook at