How do Merchant Account Fees and Gateway rates work?

Welcome to the confusing world of e-commerce. If you haven’t found enough to get your head spinning, mechant account fees might just provide that final twist.

Merchant account fees may look like a foreign language but there is a bright side; most merchant account providers speak the same language. In general, merchant account fee structures look more complicated than they really are and when you have the parts that make up the standard pricing breakdown you should be able to quickly put them together and make a good comparison.

There are 3 primary components to the standard merchant account fee structure:

  1. One time fees
  2. Recurring monthly fees
  3. Transaction related fees
    • per transaction (set fee such as 30 cents)
    • per order totals (percentage fee such as 2.35%)

These same items apply to the payment gateway fee structure:

  1. One time fees
  2. Recurring monthly fees
  3. Transaction fees

The more sophisticated merchant account providers bundle at least one of the most popular gateways into their packages. This not only allows for one stop shopping for the person looking for a merchant account, but also bundled billing and usually better pricing. This is good for the merchant but it does add to the fee structure confusion. One time application and setup fees for both are often combined in these cases.

Look carefully at additional fees. One of our merchant account recommendations has a $0.00 application and advertises a $0.00 setup fee special but their payment gateway requires a $195.00 software purchase. When making merchant account provider comparisons make sure you total all one time fees. The terms that the merchant account provider use for these fee components make little difference. We would like to see internet merchant account providers list these fees together with a total “setup cost” but they do not so it is important to compile these yourself.

Let’s walk through a real world example using an actual merchant account provider:

Total Merchant Services offers a new account with the following:

One time fees:

Merchant Account Setup: $149.00

This fee might break down as $100 for the application fee and $49 for the gateway fee. It may also be $149.00 for the merchant account setup and $0.00 for the gateway setup (depending on the relationship the merchant account provider has with the gateway provider). The actual breakdown is not published and is not important to us except in some cases where the merchant account application fee is non-refundable. In those cases (if pricing is available online) the breakdown is published.

Recurring fixed monthly fees:

Monthly Gateway Fee $10.00

This is a fixed monthly fee that virtually all gateway providers charge (the actual rate may change though this rate is very good). This fee is for the use of the gateways transaction processing services and usually includes items such as online payment cancelations and transaction reports.

Monthly Statement Fee $9.95

This is a fixed monthly fee that virtually all merchant account providers charge (the actual charge may change though this particular rate is also very good). This is a handling fee and though it is called “statement fee” by most merchant account providers we have seen it called “Monthly Service/Support/Statement” which is more accurate.

Recurring variable monthly fees:

Discount Rate (MasterCard / Visa) 2.29%

This is a percentage of each transaction amount that is typically charged by the credit card company. It also usually includes a percentage for the merchant account provider. The monthly amount of this fee depends on the transaction amounts processed during the month. Some merchant accounts have a monthly minimum discount fee (around $25.00) that you would pay if the discount does not reach that level. Some merchant account providers offer a tiered discount rate that will drop down after reaching a specified level. Merchants with high dollar value orders should look for merchant account providers with the lowest discount rate.

Per Transaction Fee (applies to each transaction) .30

This is a “per transaction” cost that is primarily related to the gateway and processing the transaction. In this situation if you had 100 transactions you would pay $30 dollars in “transaction fees”. For most merchants each order equals one transaction. Merchants with large numbers of transactions should look for merchant account providers with the lowest transaction fee.

Though the actually dollar amounts and rates for the above items may change, the components are fairly standard. If you are comparing costs it is a good idea to give an example to the sales rep and ask them for a complete breakdown. Using an even 100 for the number of transactions at $100 average order total makes comparisons relatively easy.

Clarify with the sales representative that you have all of the applicable fees. If the sales representative is not helping you clarify their pricing, move on to another merchant account provider. If the merchant account provider is not making their fee structure clear to us it is because they don’t want to.



Merchant Account and Payment Gateway Fees

This page gives an overview of Merchant Account and Gateway Fees. Be sure to read the merchant account fee related materials in the side bars and note the fee examples in the lower right.

Merchant Account Fees Quick Tip:
We prefer to use and recommend merchant account providers that have clearly stated fees published online and then confirm them (or ask for a better deal) via phone with the sales rep. Our experience is that unpublished rates usually means uncompetitive rates.

Merchant Account Fees Quick Tip 2:
If a merchant account provider does not have their prices broken down as we have here, look at them carefully. Our approach is to assume that confusing merchant account fee structures are built that way intentionally.

Quick Tip:
Since merchant accounts typically require some type of background check on your business you will most likely receive a call from a sales rep. Use that opportunity to re-confirm their rates. Restate the fees as you understand them and ask if you are missing anything.

Quick Tip:
Merchant account providers typically prohibit certain types of online businesses. This is usually done because of the high level of fraud in those categories.

If you have any question on your particular business, look for the merchant account providers’s exception list online or ask the sales representative.

Click here for Merchant Account and Gateway Recommendations