What Pricing Can You Expect With Your Merchant Account
This is a brief introduction to some components of pricing that you should be aware of as a business owner. This article will help you know enough about pricing a merchant account so that you don’t get taken advantage of when you’re negotiating with your merchant service provider on your account.
The discount rate is probably the one component of the merchant account pricing that represents the largest percentage of the fees you’ll pay as a merchant. A competitive discount rate for qualified retail transactions is about 1.29% for check or debit cards and about 1.69% for regular credit cards. Internet discount rates are typically considered competitive at 2.15% to 2.25%.
Your discount rate is determined by the risk your business may represent to the bank. The more risky your account, the higher the discount rate. The type of cards you process may also influence your discount rate, such as a business credit card vs. a check card, or rewards card for instance.
If you have a lower average ticket item or average transaction, the per transaction fee represents a higher percentage and can even represent a higher percentage of your overall fees than the actual discount rate or percentage. If you have an average ticket item of $10 and a per transaction of $.20, the effective rate on this transaction is 2%. If you add the discount rate of 1.8%, the effective rate on those $10 transactions is 3.8% which is higher than it could be.
If you have a per transaction of $.17, the same $10 transaction would have a 1.7% transaction rate which would reduce your overall effective rate on those smaller ticket items. Your goal should be to get your effective rate as low as you possibly can.
Business owners will typically have a monthly fee, usually in the form of a statement fee, customer service fee, or monthly account maintenance fee. This fee is usually about $10 per month.
Many merchant accounts have a monthly minimum. This is typically priced around $25 per month. What this means is that the minimum amount of discount fees will equal $25. If, for instance, a merchant processes only $1,000 per month with a discount rate of 1.29%, the discount fees would be $12.90. With a monthly minimum of $25, the effective rate would be 2.5% ($25 of $1000). Of course if the merchant processes $10,000 per month at the same discount of 1.29%, the fees would be $129, far in excess of the $25 minimum.
These fees represent the typical fees charged by merchant providers. There are usually other fees that will show up on your merchant account application, so be sure to ask your merchant account sales representative about any fees that you don’t recognize or know. These fees must be disclosed, even if the sales rep doesn’t tell you about them. When it comes to pricing, trust what’s written on the application because this is what you’ll be agreeing to when it comes to processing.
Find a good sales representative that you can trust. Your ability to establish a good working relationship with a reliable, trustworthy account manager will insure that you’ll be able to keep your processing costs low for the duration of the account.
Filed under: Ecommerce