Q&A: 5 Biggest Merchant Account Processing Questions Answered

merchant account processing

There are currently 364 million credit cards in use in the United States alone. Those credit cards account for more than $84 billion in online sales. More people are moving into carrying credit and debit cards instead of money.

If your business has not added a merchant account processing service for credit cards, you’re missing out on a large customer base. Many people avoid a credit card processing merchant account because they’re unsure what they’re getting into.

The biggest questions around merchant accounts are about the fees associated with an account. Don’t let the unknown scare you. You can get the answers to your pricing questions so you can make an informed decision about setting up a merchant processing account.

Merchant Account Processing Q&A

A merchant processing account is an account that allows you to accept debit and credit card payments from customers. Some merchant accounts even let you accept eChecks or ACH processing for more secure payment options. 

A merchant account is set up with a payment processor that offers the equipment and services necessary to process the payments. These services allow you to accept payment with an in-store card processor. You can also set up merchant services to process credit card payments online.

There are certain fees associated with the processing services. Merchant accounts base fees on the services provided and the credit card companies your customers use.

1. What is the Price Structure for a Merchant Processing Account?

The price structure for your processing account will depend on your business needs and the structures offered by your processing provider. The three most popular pricing structures are 

  • Interchange Plus
  • Enhanced Rate Recovery
  • Tiered

Depending on the pricing structure, your bill will either blend or itemize the fees associated with your account.

Interchange Plus

An interchange plus structure will bill the exact amount for each transaction directly to your merchant account. All markup and interchange fees get processed at their exact amounts at the time of the transaction. This structure allows you to see the individual fees itemized on your bill.

Enhanced Rate Recovery

An enhanced recovery rate has a set price for your monthly transactions. This structure will add a surcharge for any transactions that don’t qualify. The bill blends your fees.

Tiered Pricing

A tiered structure sets interchange levels with fees billed into the individual tier structures. The levels are set based on how the credit card qualifies during processing. This is also a blended fee billing process.

2. What are Interchange Fees and How are They Determined?

An interchange fee is a transaction fee paid to the bank that issues the credit card. This is a fee for accessing the customer’s information during the transaction. 

This fee covers the issuers costs for processing the payment. It’s also security against fraudulent or bad debt costs. As a merchant, you pay this fee for each credit or debit card transaction.

Determining the Fee

The interchange fee is a flat fee with an added percentage of the total sale. Current interest rates and the risk involved with the transaction determine the fee. Issuers generally charge one to two percent of the total sale when processing the fee.

Factors that Affect the Fee

There are several factors that affect how much the interchange fee is. 

  • Transaction type: How you process the card plays a part. You will pay fewer fees for a card you can scan over a card-not-present transaction.
  • Card type: Different cards have different levels of security. For instance, a debit card with a PIN will have a lower rate because there’s less risk involved.
  • Business size: A larger merchant has more room to negotiate. This means they usually have lower rates than a smaller-sized business.

Each transaction fee is different based on the bank that issues the card. It’s also based on how risky the transaction is.

3. How are Fees Deducted from Your Account?

The type of transaction determines the fees you pay. There are different levels of fees you’ll have to pay for a merchant processing account. 

  • Fixed fees are annual and monthly access fees built into your merchant account.
  • Processing fees are the transaction fees you pay each time you process a card. The bank calculates these fees for each transaction.
  • Situational fees are fees that come up for special circumstances. This includes cancellation, chargeback, and international fees.

The issuer processes these fees on either a daily or monthly basis.

Daily Deductions

Daily deductions allow the fees to deduct from your account at the time of the transaction. For each sale, the fees get deducted before the final amount is deposited into your account.

Monthly Deductions

With a monthly deduction, the full sale amount gets deposited into your account. The fees are then deducted at the end of the month. This includes all processing fees for individual transactions.

4. What is the PCI Compliance Charge?

The Payment Card Industry Data Security Standard ensures that customer’s information is secure during processing and storing. These standards require that you use a PCI compliant host for customer data. 

Any customer data that’s stored must have protection against hackers. You also have to ensure that all data is properly encrypted during a transaction when using a public network.

The PCI Fee

Credit card processors will do regular PCI compliance checks. They make sure businesses are following data security regulations.

To cover the cost of this compliance check, they charge a fee to the merchant account. This fee also ensures the merchant sticks with compliance standards.

5. Are There Termination Fees?

Most merchant account providers will have a contract in place. This contract often includes an early termination fee.

This fee gets charged if the business closes their merchant processing account before the end of the contract. These fees might include a set amount, a prorated amount based on the remaining contract, or a combination. 

All contracts negotiations happen before completing the account setup. This means you have the option to negotiate the termination fee before using the services.

High-Risk Merchant Accounts

Some industries have a higher security or fraud risk than others. This can leave some businesses with difficulties setting up a merchant account.

It doesn’t have to be that way though. If you want to take advantage of merchant account processing services, contact us to complete an application. 

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  • February 18, 2019
  • FAQ