The Various Fees Associated with Merchant Accounts

Whether you run a small one-person business or a mega-corporation, payment processing fees are unavoidable. Most business owners view them as the price they have to pay for the convenience of payment processing services. These services include valuable credit card and digital payment options for their customers and streamlined payment management for their business accounts. The trade-off is worth it for most merchants, but that doesn’t change the expensive merchant account fees, especially for small businesses.

Merchant fees can vary greatly depending on the type of merchant account, the payment processing company, and the available services and payment options. No matter what type of account you’re considering, it’s crucial to understand the per-transaction fees and the monthly or annual fees you’ll pay for each particular plan. Any reputable payment processor will give full disclosure on these figures. However, as a busy merchant, it can be time-consuming and overwhelming to decipher and manage these processing costs.

Table of contents

• Merchant Account Fees and the Payment Chain
• Most Common Merchant Account Fees
• Merchant Account Fee Pricing Structures
• The High Cost of Payment Processing
• Preventing Chargeback Fees
• High-Risk Merchant Account Fees

Merchant Account Fees and the Payment Chain

Many organizations charge processing fees along the payment processing chain. To understand how this works, it’s a good idea to determine who gets paid along this payment chain.

When a customer pays for goods or services with a credit or debit card, the payment is first given to the merchant. From there, the payment is whisked away to the merchant’s bank (also known as the “acquiring bank”) and then passed on to the payment processing company. At this point, the payment may also go to a third-party payment processor known as an independent sales organization (ISO) or membership service provider (MSP).

Once the payment has passed through the processing mode, it ends up at the bank that issued the credit card (referred to as the “issuing bank”). From there, it’s passed on to the corresponding credit card company.

After going through so many stops along the way, it’s not surprising that several fees are tacked on to each payment card transaction. After the payment is made to the merchant, at least four other entities — the merchant bank, payment processor, issuing bank and credit card company — have a financial stake in making a profit from the transaction. As a merchant, you’re charged a markup rate on each transaction under the guise of processing fees.

If you’re concerned about excessive charges on your merchant transactions, Zenti offers high-risk merchant account services at affordable rates, even if you’ve previously been denied payment processing. These services include a full roster of payment options for your customers, including all major credit and debit cards and digital payment methods.

Most Common Merchant Account Fees

For every payment card or digital payment transaction, merchants are required to pay three basic fees:

• Interchange fee: Goes to the issuing bank

• Assessment fee: Goes to the credit card network

• Processing fee: Goes to the payment processor

Other common merchant account fees may include:

• Statement fee: This is an administrative fee (usually just a couple of dollars) that’s added to your monthly statement.

• Termination fee: This is a charge you may have to pay if you terminate your merchant account.

• Batch fees: These are imposed when transactions are processed in bulk, usually at the end of each business day.

• Equipment fees: Depending on your merchant account, you may be required to pay a deposit fee or rental rate for a card reader, point-of-sale (POS) station, or other payment processing equipment.

In addition to these transaction and payment gateway fees, you may be charged various other fees according to the types of transactions you usually have and the types of payment cards you accept.

Typically, merchant account providers require you to pay a setup fee, a per-transaction fee, and a monthly minimum fee. And while some of these fees are implemented by the merchant services provider, others originate from the credit card network, the issuing bank, and the payment gateway processor.

Merchant Account Fee Pricing Structures

Payment processors generally use one of these three types of pricing structures for their merchant accounts:

Flat-rate: As the name implies, flat-rate pricing charges the same rate — typically a percentage rate plus a minimal fee — for every transaction. Flat-rate pricing is especially advantageous for small businesses that don’t process more than 5,000 USD monthly.

Interchange plus: With interchange plus, you pay a flat processor’s fee plus a variable percentage rate based on the interchange fee, a transaction fee set by the credit card company. One of the advantages of interchange plus is that it allows merchants to negotiate processing fees, making it particularly beneficial for businesses with a high volume of credit card transactions.

Tiered pricing: In tiered pricing, the payment processing company bundles its interchange fees into a variable rate, generally the same regardless of which credit card is used. This rate is structured into three tiers:

• Qualified: Qualified rates are charged for non-reward credit cards and standard debit cards. Qualified card transactions charge the lowest processing fees.

• Mid-qualified: Mid-qualified rates are charged to loyalty cards, membership rewards cards, and transactions that must be manually keyed in.

• Non-qualified: Non-qualified rates are charged for high-reward cards, corporate cards, international credit cards, and card-not-present transactions. Non-qualified card transactions charge the highest processing fees.

If you’ve ever wondered how credit card companies can afford to offer enticing cash-back reward programs, one look at tiered pricing explains it. For cards with more cash-back rewards, merchants (and sometimes customers) have to pay higher processing fees. This higher markup helps pay for all those rewards and customer benefits.

For merchants, these markup fees can add up quickly and make a major dent in monthly revenues. To counter that, Zenti provides a full range of affordable payment processing services for all types of high-risk businesses, even if you’ve been denied merchant account services in the past. With Zenti, you can retain customer loyalty and satisfaction by offering various payment options without excessive processing fees.

The High Cost of Payment Processing   

With so many organizations getting a revenue cut from every processed payment, you may wonder how much you’re paying for each credit card transaction. Unfortunately, there’s no easy answer because the amount depends on various factors, including your merchant standing, credit card transaction volume, sales volume, and which credit cards your customers use.

American Express, for example, has a reputation for being the most expensive credit card company. Because of this price difference, statistics show that approximately 1.3 million fewer merchants accept American Express than its competitors. In 2018, American Express lowered its basic transaction fees to be more competitive, but it’s still a higher-fee card.

For merchants, the average interchange rates for the Big Four credit cards are:

• Mastercard: 1.5 percent – 2.6 percent

• VISA: 1.4 percent – 2.5 percent

• American Express: 2.3 percent – 3.5 percent

• Discover: 1.55 percent – 2.5 percent

While these amounts may seem small, they’re not when considering the nationwide credit card sales volume. To give you an idea, in 2021, U.S. merchants paid VISA and Mastercard approximately 55.4 billion USD in credit card interchange fees.

It’s important to understand that these interchange rates don’t include payment processing fees, which vary according to your payment processing company. You may also be charged additional administrative or equipment rental fees.

And for merchants, it doesn’t help that some payment processors charge varying fees for different credit card brands. If you’ve heard a merchant tell you they don’t accept a certain type of credit card because its fees are too high, the issue may be with the merchant service provider rather than the credit card company. However, Zenti charges the same low rates for VISA, Mastercard, American Express, and Discover, so you can offer your customers their preferred choice of payment without having to pay higher fees. Plus, Zenti can help you get zero-fee processing on your merchant account, even if you’ve been turned down in the past.

Preventing Chargeback Fees

Chargeback fees are the bane of every merchant’s existence. And while returns and transactions are unavoidable for any business, some industries are especially prone to high chargeback rates.

Chargebacks refer to credit or debit card refunds that result from the purchaser contacting the credit card issuer. Once the request is made and the reasons are validated, the credit card issuer will refund the customer for the full purchase amount.

Common reasons for chargebacks include:

• Transaction error, such as a duplicate charge or inaccurate amount charged

• Non-delivery of items

• Purchases arrived damaged

• Customer dissatisfaction with goods or services

• Cancellations of subscription services

• Customer claims the charge was unauthorized

Chargebacks are problematic because they result in loss of sales. Plus, merchant accounts typically impose extra fees for chargebacks. High chargeback ratios can also indicate security issues stemming from website or payment system vulnerabilities that leave your business open to credit card fraud. Ultimately, banks may designate your business as high-risk, making it difficult for you to get the payment processing services you need.

If you have a problem with high chargeback rates, Zenti can give you the tools and strategies you need to prevent chargebacks and keep them from recurring. With Zenti’s expert help, you can implement security solutions to prevent payment and identity fraud, plus protocols to help you manage your sales more safely and securely.

High-Risk Merchant Account Fees

Regardless of your business’s success, you may be paying more in processing fees if your business belongs to a “high-risk” industry. Typical high-risk industries include:

• Adult entertainment websites

• Vape and CBD retailers

• Nutraceutical companies

• Online dating sites

• Property management companies

• Document preparation services

• Fantasy sports clubs

• Travel agencies

• Collectibles/antiques dealers

• Multi-level marketing companies

• Online gambling and gaming sites

• Gun retailers

• Pay-day lending services

Banks and credit card companies designate businesses as high-risk due to various factors, including:

• High chargeback rates

• High rates of fraud

• Reputational issues

• Large volume of card-not-present transactions (purchases are remote)

• Unusually high transaction volumes

Credit card companies are underwritten and financially backed by banks and financial institutions, and these organizations are reluctant to take financial risks. Because of this, they automatically categorize certain industries as high-risk, making it difficult for these merchants to get payment processing services unless they’re willing to pay expensive fees to cover any possible loss. Toward that end, some high-risk payment processing providers charge excessively high fees for basic merchant services, making them unaffordable for many small and mid-size businesses.

If you have a high-risk business and need merchant account services, Zenti specializes in providing a wide range of payment processing solutions, no matter what type of high-risk industry you’re in. Plus, Zenti offers the lowest industry rates and tools to help keep your account safe from excessive chargebacks and credit card fraud. To learn more, contact Zenti and find out how you can get the merchant services you need at affordable rates.