Understanding Merchant Account Fees and Their Terminology
Over the past couple of weeks I have run into many merchants that feel ripped off by their merchant sales representative with regards to their merchant account fees. Time and time again I hear “I just didn’t know what to ask for.” Like with any other purchase for your business, it is important to learn about your product. Ask questions about your rates and fees. Do your homework and understand what merchant account fees are and how or why they are required.
Here is a list of common terms you should know when talking to credit card processing companies:
Qualified Rate – This is typically the rate you are quoted when you sign up for a merchant account. This rate only applies to swiped regular retail cards. Be sure to ask what your Mid-Qualified and non-Qualified rate will be.
You may also be charged an Authorization Fee. This is the amount charged to a merchant account each time communication happens between the software or point of sale terminal and the authorizing network. Make sure you are not charged an additional transaction fee because the two are the same.
Your sales agent may refer to Basis Points. Basis points are the percentage that you are charged on a credit card transaction. One basis point is equal to 1/100th of 1 percent. Thus a rate of 1.85% is equivalent to 185 basis points. For some merchants, a basis point mark above Interchange is advantageous.
Batch Closure fee – This is a fee charged each time a settlement or end of day processing totals are sent to the financial institution.
Electronic Data Interchange (EDI) – The electronic communication of business transactions, such as orders, confirmations and invoices.
Transaction Fee – A per transaction amount charged by the bank for processing each transaction. This amount is in addition to the discount rate. For example: a discount rate of 1.85% plus 30 cents per transaction. Make sure you are not being charged an Authorization fee as well.
PCI Compliance Fee – This fee is usually assessed by your merchant bank because they are passing on a fine they received from the card associations. Make sure to dispute this with your processor if you see it on your statement.
Knowing the merchant processing industry lingo is just one way to protect your business from getting ripped off through your merchant account fees. Always remember to read the fine print and get a second opinion.