Pricing and Costs of Merchant Accounts

Find out about the pricing and costs of merchant services for small businesses

Credit card merchant accounts for small business can make or break you. By not accepting credit cards, you can actually deter potential customers from buying from your company, since credit and debit cards are the most common form of payment nowadays. Chances are, the small fees you'll incur to accept credit cards will pale in comparison to the profits you stand to gain.

The pricing and costs of merchant accounts vary. Factors that come into play include the type of transactions you're doing (face to face versus over the phone or online) and method of transacting (using a credit card machine as opposed to an Internet service). Consider the following types of fees:

1. The discount rate. This is the main fee you'll pay for merchant services.

2. Rates charged by Internet merchant account providers. These are slightly different than those of traditional services.

3. Other common fees that come with merchant accounts, like batch fees and gateway fees.

Understand the different types of merchant account transactions

The discount rate is a percentage of a transaction, usually ranging between about 1% and 4%. The difference between "qualified" and "non-qualified" transactions is a couple of percentage points. While it may not seem like much, it can definitely add up. If you have a retail storefront, keying in credit card numbers will most likely bump you up to the higher mid- or non-qualified rate (although address verification can save you here). Even if you do swipe the card, you may be subject to higher rates if the card is a corporate card or an international card, or if it's associated with a reward program, like earning frequent flyer miles. Mail-order and Internet transactions are often automatically charged the non-qualified rate due to higher fraud risk.

Consider using online merchant account providers

Whether you have a storefront, mail-order company or Internet-based business, you can use online merchant account providers and forgo the credit card machine. These range drastically in sophistication, but expect to pay anywhere from $20 to $60 per month plus discount fees. Some of these require a special software program or card reader, but overall, this may be the best solution for those who need to process transactions in a variety of situations.

Get the scoop on other fees charged by credit card merchant account providers

There are quite a few other fees that may be associated with your new merchant account. These may include an application fee, monthly statement fee, annual fee, batch fee and early termination fee. You may also have a monthly minimum, so if you only accumulate $10 worth of fees by the end of your billing cycle, you may end up paying more, if your monthly minimum is higher than that. It's also important to note that in addition to the discount rate, you'll likely pay a discount fee of anywhere from 10 cents to 50 cents for each transaction you process.

• Accepting debit cards is also something you'll want to consider when looking for business merchant accounts. Generally, a debit transaction costs much less than swiping a credit card since pin-based transactions are more secure. Expect to pay anywhere from 10 cents to 50 cents per transaction, although you may have a gateway fee or authorization fee in addition (although this fee is also very small).
• If you're having trouble finding reasonable rates for your high-risk business, consider using an international merchant account. Since off-shore accounts don't have to comply with U.S. regulations, you could get a better deal this way. The flip side of this is that since U.S. regulations don't apply, your business may not be as protected.

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