Merchant Fees

Billion Financial Advisors > Merchant Fees

For merchants, it can be almost impossible to run a business without taking credit or debit cards. However, the fees from these transactions can eat into profits, making it hard for some merchants with a small spread to stay afloat. The average credit card processing fee ranges between 1.5% and 3.5%.

There are multiple types of fees associated with each transaction, and fees can vary depending on the type of payment forms accepted.

Billion Financial helps our clients navigate this complex ecosystem of merchant fees and services and helps implement strategies that help our clients save millions of dollars on their card fees.

Some of our strategies include

  • Interchange Optimization
  • Processor Fee Negotiation
  • Network Fee Negotiation
  • Establish a Minimum Credit Card Charge
  • Use Credit Card Tokenization Technology
  • Avoid Higher-Fee Keyed Transactions
  • Use the Processor’s Payment Gateway
  • Minimize Credit Card Chargeback
  • Add Optional Fraud Protection Tools
  • Discounted Cash Payments
  • Debit Card Transactions
  • ACH Payments
  • QR Code Payments

Complexity of Merchant Fees can be explained in some detail as under.

Interchange Fees

Merchant Category Code (MCC)

When your business accepts credit cards, you are issued a four-digit number as an MCC. Your MCC helps with IRS reporting. It also categorizes your industry so that financial institutions can assign you a risk factor when determining interchange fees. For example, companies with a higher risk factor, like travel and gambling, are often subject to higher interchange fees.

The interchange fee represents the biggest portion of the card processing fee. The credit card network sets this fee, which is determined by the interchange rate. The network remits the interchange fee to the bank (or other financial institution) that issues the customer’s card. The fee is designed to help reduce the bank’s transaction risk. Interchange Fees are set by each network and change every year in April and October. The average credit card interchange fee is 1.5% to 3.3%.

The following risks will influence your interchange rates

Credit or debit card type

Credit cards have a higher risk than debit cards with a security PIN, so you will pay higher interchange rates for credit card transactions. However, debit cards that require a signature are processed like credit cards, and credit cards that double as reward cards (travel, cash back, etc.) can also have a higher interchange rate.

Point of Sale (POS) vs. Card-Not-Present (CNP) transactions

POS transactions may have lower interchange rates than CNP transactions. CNP transactions include online, phone, direct invoicing and mail orders.

Charge amounts

If your business has a large number of transactions of small dollar amounts, you can negotiate lower interchange rates to increase your profit.

Card network Fees

Card networks include American Express, Discover, Mastercard and Visa. They facilitate credit and debit transactions between the card issuer and the merchant. In addition, card networks partner with card issuers for credit cards and debit cards. This fee is based on monthly sales, not per transaction.

Card networks also determine where credit and debit cards are accepted. While credit cards used to have a variable acceptance rate, major credit card networks now have relatively similar rates. Card networks are also responsible for any credit card or debit card perks or rewards.

Additional fees charged by card issuers and networks

If you accept cards, you will also be subject to the following fees. These costs do not vary between processing companies and are required by every payment processor.

  • Acquirer Processing Fee (APF):This is a charge on all U.S. business Visa credit card transactions.
  • Fixed Acquirer Network Fee (FANF):This charge is common to all card brands and is based on the presence or non-presence of the card at the time of the transaction, the number of locations, and volume.
  • Kilobyte Access (KB) Fee:This is a per-transaction charge for settlement upon authorization.
  • Network Access and Brand Usage (NABU) Fee:Mastercard charges this fee for all settled or refunded credit and debit card transactions.
  • Account fee:This is an administration fee that helps maintain the client’s payment processing account.
  • Address Verification System (AVS) fee:This is a fee for matching a client’s billing data with keyed-in transactions (per transaction).
  • Batch fee:This is a fee for settling or closing out daily deposits (batch header fee).
  • Chargeback fee:This fee is assessed every time a client disputes a charge or returns a purchase.
  • Contract cancellation fee:This is a penalty fee assessed when clients cancel their contract with the payment provider before its end date
  • Hosting fee:This is a fee for server-based POS systems
  • IRS reporting fee:This is a merchant-based fee that covers reporting relevant information to the IRS
  • Marked-up discount rate:This is an additional charge above and beyond mandatory interchange rates
  • Minimum monthly processing fee:Credit card processors can impose a minimum monthly transaction quota. The minimum monthly processing fee can be charged whether or not clients meet their requirements
  • Monthly fee:This is a flat-rate subscription fee to use the payment processing service or software
  • Payment gateway fee:This is a fee for processing online credit card payments attributed to software and data security costs
  • PCI compliance fee:This is an additional fee to keep clients PCI compliant
  • Service fee:Similar to the account fee, this fee is tied to running the client’s payment processing account
  • Terminal lease fee:This is the monthly cost to lease credit card machine
  • Wireless access fee:This is a fee for using a cloud-based POS system