Merchant Accounts 101
Everything You Need to Know to About Merchant Accounts
Author: Jim Conners
Rating: 10.0
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Monthly and Annual Fees
Besides the fees incurred directly for processing credit cards there are other fees associated with establishing and running a merchant account. These fees occur on a regularly scheduled basis and may be indirectly related to the merchant's processing levels.
Statement Fee
The statement fee covers the cost for creating a statement for the merchant each month that details the processing history for the previous month as well as a breakdown of the fees incurred from that month's processing. It also typically includes the costs for customer service and technical support as well. However, some merchant account providers will separate their monthly fees for statements and customer service and tech support.
Most providers will not waive this fee even if you decline a paper statement being mailed to your business. This is because they still aggregate that data even if you don't elect to receive it. Plus it also includes your customer service and tech support costs for the month.
Monthly Minimum Fee
The monthly minimum fee is a fee which guarantees the merchant will be paying a minimum amount each month in processing fees. If a merchant's discount fees do not equal their monthly minimum fee they will be charged the difference between the two in addition to their discount fees.
Example:
A merchant has a discount rate of 2.50%, a monthly minimum of $25, and a monthly volume of $600. The discount fees for the month will be $15.00 (.025 x $600). Because their discount fees are less then their minimum fee ($15.00 < $25.00) they will be charged an additional $10.00 as a monthly minimum fee ($25.00 - $15.00).
So, what is the purpose of this fee? Merchant account providers and their sales agents make their money by taking a very small percentage of every sale a merchant processes. Naturally this can be very lucrative. But, if a merchant is very small, they won't make very much money from them. So, to make up for this, they charge this monthly minimum fee. Then, when the merchant has a slow month, this fee is incurred and the merchant account provider still makes their profit from this merchant.
This fee is not required by Visa and MasterCard to have an account with them. Many processing companies offer merchant account with excellent rates without the monthly minimum fee. 2
Annual Fee
Annual fees are exactly what their name implies. They are charged each year that the merchant has their merchant account through their current provider. Some merchant account providers charge this fee on the anniversary that the merchant account was established while others charge this fee on a set date each year. There are several different types of annual fee including membership fee and merchant club fees. Regardless of the name they all serve the same purpose.
This is not a standard or common fee for establishing a merchant account.
2 The Monthly Minimum Explained
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