Credit Card Processing Fees and Recurrent Costs

These days, business ownerstypically have to offer customers the option to pay with credit cards in order to compete with other businesses, both brick-and-mortar and online stores. However, when starting a business, many people fail to take into account the various fees associated with credit card processing. Forgetting about these fees can be dangerous, as credit card fees are the third-largest expense for most stores, falling just behind labor costs and rent.
 
In order to be profitable and stay within budget, small business owners should understand the costs associated with credit card processing, as well as the hidden fees that go along with credit card merchant accounts.
 
The High Price of Credit Card Fees
According to the National Association of Convenience Stores, in 2005, credit and debit card fees accounted for more than 90 percent of a store's profits, adding up to approximately $38,000 per store. While this amount is staggering, the association correctly predicted the fees will continue to rise in coming years.

Credit Card Merchant Accounts

A merchant account is an account that a business establishes with a bank or an independent service provider in order to be able to process credit and debit card transactions. No matter which provider you use, you will be charged a fee that often includes an initial setup fee. In addition, merchants will also have to pay a “per-transaction fee,” a fee that the business owner pays for each credit card transaction processed. If you find a company offering free credit card processing, be sure to read the fine print: The offer is probably too good to be true.

In general, look for a per-transaction fee of about 2 percent. Keep in mind that third-party processing companies tend to offer cheaper transaction fees than do banks. However, fees vary widely and will depend on whether the transaction occurs in your store, over the phone or online. When setting up your credit card merchant account, be sure to ask for a run down of the various transaction fees for which you will be responsible.

Credit Card Nation
According to the study conducted by Dove Consulting/American Bankers Association in 2003, for the first time in history, Americans made more payments using credit and debit cards than they did with cash or checks. Electronic payments accounted for 52 percent of all purchases in that year.

Credit Card Merchant Accounts: Hidden Fees

When establishing a credit card merchant account, some people overlook important hidden fees. Because these fees vary from provider to provider, ask for a complete list of fees before signing a contract:
  • Application Fees: This is a fee to process your application for an account.

  • Charge Back/Reversal Fees: A fee will be charged to your account if a person protests a charge or if he has a charge reversed for any reason.

  • Gateway Access Fees: If you are an online merchant, you will be charged this fee to use a secure server to approve transactions.

  • Gift Certificate Processing: Many merchant account providers will give you the option to accept gift certificates. While this is definitely a perk, it can cost you up to 50 cents per transaction.

  • Monthly Statement Charges: Your provider may charge you this fee to produce and process a monthly statement.

  • Start-Up Fees: Start-up fees are what a company charges you to establish the initial merchant account. In general, you can expect to pay approximately $150 in start-up fees if you choose to setup your merchant account through a bank.

  • Termination Fees: In general, merchant account providers will charge you a fee if you break your contract with them before your contract is up. Typically, contracts last anywhere from one year to three years. Getting out early could cost you several hundred dollars or more.

Also, keep in mind that, in addition to your merchant account, you will need to necessary hardware and software to accept credit and debit card payments. This can significantly up the cost of establishing a payment system for credit and debit cards.

Resources

Farrell, Maureen (2007). Saving on Credit Card Processing Fees. Retrieved September 12, 2007 from the Forbes.com Web site: http://www.forbes.com/home/2007/02/20/ visa-americanexpress-globalpayment-ent-fin-cx_mf_0220 creditcard.html.

National Association of Convenience Stores (updated July 2006). Credit Card Fees a Growing Challenge for Convenience Stores. Retrieved September 12, 2007 from the NACS Online Web site: http://www.nacsonline.com/NR/exeres/ 00004052rfbwwyruikowqaeb/FactSheetsTemplate_OneCallout. asp?NRMODE=Published&NRORIGINALURL=%2fNACS%2f Resource%2fPRToolkit%2fFactSheets%2fCreditCardFactSheet %2ehtm&NRNODEGUID=%7b9F93F7BE-2FBB-46E3-B357-35D4
B7FC0BF9%7d&NRQUERYTERMINATOR=1&cookie%5Ftest=1.
 
Web Marketing Place LLC (n.d.) The Credit Card Processing Fee. Retrieved September 12, 2007 from the WebSiteMarketingPlan.com Web site: http://www.websitemarketingplan.com/payments/ Credit-Card-Merchant-Account.html.