Merchant Account Fees Explained: Everything You Need To Know About Credit Card Merchant Fees

The main factor complicating merchant account fees is that each fee serves a specific purpose that makes it distinct from other fees, resulting in a bewildering variety of charges that can show up on your processing statement.

Another complicating factor is that some merchant account fees are levied by your processor, while others are charged by the major credit card associations (e.g., Visa, Mastercard, Discover, and American Express). With these fees, your processor merely collects the fee and passes it on to the appropriate entity. Needless to say, these types of fees are non-negotiable when setting up your account.

Finally, there is no standardization among merchant services providers with regard to fees. While most providers tend to stay within industry averages, each provider is free to set its own fee schedule using whatever criteria it deems appropriate.

These fees are assessed every time you run a transaction. Transaction fees usually comprise the biggest cost of accepting payment cards. Credit card transaction fees usually include two elements: 1) a percentage-based fee (e.g., 2.19%, 0.25%) and 2) a fixed fee (e.g., $0.20, $0.0195). Note that these fixed fees are more properly referred to as authorization fees.

Note that this article focuses primarily on merchant services fees. Please see our complete guide to credit card processing rates and fees for an in-depth look at credit card processing fees.

Scheduled merchant account fees are the recurring fees you pay to maintain your account. While most of these fees are charged on a monthly basis, you may also encounter annual or quarterly fees as well. While many of our top-rated providers disclose a complete fee schedule on their websites, many others do not. In this case, your fees should be specified in your contract documents. Note that providers don’t always charge the same amount for a given fee for every merchant, and some of these fees can be reduced or eliminated through persistent negotiation during the account setup process.

Below is a compilation of the most common scheduled fees used by the payments industry today. Note that markup fees are paid directly to your provider, while wholesale fees are passed through to the applicable entity charging the fee.

Incidental fees are only paid when a pre-defined incident occurs with your account, triggering the fee. Most of these fees are only charged once per incident. However, PCI non-compliance fees are usually charged for every month that your account is deemed to be out of compliance. The most common incidental fees include the following:

• Refund Fees: If you issue a refund to a customer who paid with a credit or debit card, you may be charged a refund fee by your processor. Most processors will return the amount of the purchase, but some will keep any transaction processing fees that were charged. Policies vary widely among providers, so you’ll want to make sure you understand your provider’s policy before signing up.
• Chargeback Fees: More accurately described as a chargeback investigation fee, you’ll pay this fee to your provider whenever a customer files a chargeback against you with their card-issuing bank. Chargeback fees usually cost $15-$25 per chargeback, although some providers will refund this fee if you prevail in the chargeback investigation.
• Batch Fees: Many (but by no means all) providers charge a small fee whenever you upload a batch of transactions for processing. Retail businesses traditionally submitted all credit/debit card sales for the day in a single batch at the end of the day, but this approach doesn’t always work for eCommerce businesses that accept orders 24/7. Although batch fees typically only cost around $0.10 each, they can add up quickly if you aren’t careful. Many providers today have eliminated batch fees altogether.
• Address Verification (AVS) Fees: Card-not-present transactions usually require the use of the Address Verification Service (AVS) to verify that the customer’s billing address matches the one provided by the customer at checkout. AVS fees — if your provider charges them — typically cost around $0.10 each. However, the use of AVS is a powerful tool in preventing online credit card fraud, and AVS fees are generally worth the additional expense.
• PCI Non-Compliance Fees: This type of fee is essentially a penalty for not maintaining PCI compliance standards for your business. Unfortunately, most providers merely add this fee to your monthly processing statement without doing anything to help you get back in compliance. We recommend reading every monthly statement very carefully and contacting your provider for assistance immediately if you see that you’ve been charged this fee. Non-compliance fees typically run about $30/month until your account is brought back into compliance.

While the practice is no longer common, some providers will still charge you a one-time fee to process your application for a merchant account, and possibly a second fee to set the account up once it’s been approved. We recommend that you steer clear of any provider that still charges these fees, as they’re likely to add even more fees to your account once you’ve signed up. The exception is for high-risk merchants, where the additional underwriting required to approve an account sometimes justifies paying a setup fee. (Note: if you have bad credit, your business will be considered high-risk, but you can still get a merchant account with bad credit.)

In addition to a monthly account maintenance fee, some providers will also charge you a hefty annual fee, claiming that this expense is necessary to cover the cost of software and hardware upgrades. In most cases, however, it’s simply a “junk” fee that’s tacked onto your bill while providing little or no actual value in return. Annual fees can run into hundreds of dollars, a significant expense for a small business.

Perhaps the most reviled “hidden” fee in the processing industry is the early termination fee (ETF). This fee, which typically runs between $200 and $600, only applies if you’re on a long-term contract and trying to close your account before the current term expires. Unfortunately, complaints about ETFs usually come from merchants who mistakenly relied on their sales agents to disclose all fees before signing up and failed to read their contract documents. While most of the top-notch providers in the industry today no longer require long-term contracts or ETFs, there are still plenty of traditional providers out there that will include these features as standard items in their contracts.

Very small or newly-established businesses often don’t need the features of a full-service merchant account. Payment service providers (PSPs) like Square offer month-to-month billing with no long-term contracts and no monthly fees for basic services. Fees for optional services are clearly disclosed on the Square website. While you’ll pay more on a per-transaction basis with Square’s flat-rate pricing, your overall cost will be much less due to the savings on account fees.

For larger businesses, using a PSP like Square or PayPal won’t be a great option due to account stability issues, higher transaction processing costs, and a lack of specialized features. If your business needs a full-service merchant account, you can still find providers that fully disclose their fee schedules on their websites. Companies like Helcim and Dharma Merchant Services offer some of the most thorough pricing disclosures we’ve found anywhere. With transparent providers like these, you’ll be able to come up with a more accurate estimate of your anticipated costs before you even contact their sales departments.

If you end up with a more traditional merchant account provider that doesn’t offer a fixed, fully-disclosed fee schedule, you can still negotiate some of the fees that come with your account. Note that wholesale fees that are passed through to other entities are not negotiable, but any markup fees charged directly by your provider are fair game. For example, most providers are surprisingly willing to waive your early termination fee if you have a long-term contract. Monthly minimums and rolling reserves (if you have one) can also be reduced through negotiation.