What Fees are Associated With a Merchant Account?

The fees that you will pay for a merchant account vary depending upon many of the factors discussed earlier, such as perceived level of risk, estimated dollar volume, the aggressiveness of the acquiring bank, etc. In general, however, the following rates will apply:

Setup Fee: sometimes called an “application fee”, this one time fee varies widely, from $200 to $500 depending upon the acquiring bank.

Discount Rate: the discount rate is the percentage of the total sale that you pay to the acquiring bank, and is typically the largest cost of having a merchant account. These rates are determined using a number of factors, including the average order dollar amount, estimated total monthly dollar volume, the perceived business risk, etc. Internet-based merchant account discount rates range from approximately 2% to 4%. Small variations in discount rate can have a large impact on your total cost if you are processing significant dollar volume.

Transaction Fee: some acquiring banks levy a transaction fee in addition to the discount rate. Of those that do levy a fee, they typically range from $.10-$.30 per transaction. Note that banks that waive the transaction fee sometimes “build it in” to the discount rate to make their fees appear more competitive. Comparing the total cost of different providers will allow you to make informed decisions by comparing “apples to

Statement Fee: this fee covers the cost of producing your monthly statement. Typical fees are $10 or under, and some banks do not charge a statement fee at

Monthly Minimum: some acquiring banks will charge you a minimum fee (e.g. $25) if your discount rate plus transaction fees do not exceed the minimum amount.

Chargeback Fee: if a customer successfully repudiates a charge from you, the bank will charge you a “charge-back” fee. This rate varies from $10 to $25 for each chargeback. Note that too many charge-backs will likely result in the loss of your merchant account status, so be sure to take advantage of available fraud control technology and apply sound business judgment in order to reduce incidences of charge-backs.

Reserve Funds: if the acquiring bank perceives that your level of risk exceeds their standard guidelines but is not high enough to result in a rejected application, you may be required to set up a reserve account with the bank. This typically consists of a percentage of your sales volume (e.g. 10% of your estimated first six month’s sales). This provides a fund that the merchant account provider can access should you exit the business or you experience excessive charge backs.

Because of the number of fees involved, we recommend that you prepare a spreadsheet to calculate the total cost of the various merchant account alternatives that you are exploring. This will help you make your final decision by doing an objective evaluation of all costs and features.

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