Merchant Account Fees Explained: Everything You Need To Know About Credit Card Merchant Fees
Merchant account fees are more than just the cost you pay per credit card swipe. Learn all about merchant services fees, including tips on avoiding hidden fees.
Merchant account fees (or merchant services fees) are an inevitable — and deeply unpopular — element of establishing a merchant account that will allow your business to accept credit and debit cards. Merchant account fees can eat into your profits and make it even more expensive to process credit/debit card transactions. Worst yet, fees often aren’t disclosed during the sales process and instead appear out of nowhere as an unexpected surprise on your monthly processing statement.
In this article, we’ll explain what merchant account fees are, which fees are commonly charged, and how much you should expect to pay for them.
We’ll also give you some tips on how to avoid being surprised by a “hidden” fee and offer some suggestions to help you lower your merchant account fees when you’re looking for the best credit card processing companies for small businesses.
Table of Contents
What Are Merchant Account Fees?
Having a merchant services account is an integral part of payment processing for your small business. Merchant account fees are simply fees paid to maintain the merchant account you need to be able to accept credit and debit cards. Many of these fees recur on a monthly or annual basis, whether you process any transactions or not. Other fees are only assessed if a specified event (such as a chargeback) occurs.
Common Merchant Account Fees For Small Business
Regardless of which provider you sign up with, your merchant account will come with three types of merchant services fees, including the following:
- Transaction Processing Fees: These are charged by the banks, the card associations, and your processor for processing your transactions and disbursing the remaining funds to your account.
- Scheduled (or Recurring) Account Fees: These are fees charged by your merchant services provider for maintaining your account. They are typically charged on a monthly or annual basis.
- Incidental Fees: These fees are only assessed if a defined triggering event occurs (chargebacks are the most common). They are usually a one-time additional charge, although PCI non-compliance fees will be charged every month until your account is brought back into compliance.
Do Merchant Accounts Have Hidden Fees?
It’s commonly accepted among business owners that merchant accounts include hidden fees. By “hidden,” they mean fees that either they weren’t aware of or weren’t disclosed by the sales agent who set up their account. It’s true that sales representatives trying to sign up a new merchant will frequently gloss over — or completely fail to mention — every fee that you might possibly have to pay. At the same time, merchants share an equal part of the blame if they fail to read their contract documents or merchant agreement thoroughly before signing up.
Your merchant agreement should disclose the name and amount of every fee you will or might be responsible for over the life of your account. (Be aware, however, that some providers cover themselves by including a clause in their contracts that allows them to impose new fees or raise existing ones, with or without prior notice to you.)
While you should be able to locate information about every fee that comes with your account, the following fees generate the most complaints about “hidden” fees from merchants:
What Can You Do About Hidden Merchant Account Fees?
As we’ve emphasized above, your single best defense against hidden fees is to read your contract documents thoroughly before you sign up with any provider. By doing this, you’ll avoid being surprised by an unexpected fee later on. Other steps you can take to lessen the impact of merchant account fees on your bottom line include the following:
The Bottom Line On Merchant Services Fees
While merchant account fees are definitely irritating (and expensive!), they’re often an inevitable cost of doing business. Even if you sign up with a payment service provider like Square that doesn’t charge monthly fees, you’ll still be paying the costs associated with maintaining your account in the form of higher transaction processing rates.
Unfortunately, the overall impact of merchant fees falls most heavily on small business owners with a relatively low monthly processing volume. If your current merchant account provider is hitting you with a bewildering variety of unexpected fees every month, you’ll want to consider switching providers. Our list of cheap credit card processing companies is a good place to start looking. We also have an article on how to accept credit cards without a merchant account.
In looking for a better deal, be aware of the industry averages we’ve listed in the table above, and follow the strategies we’ve recommended for lowering the overall impact of merchant services fees on your business. You’ll also want to learn how to calculate your effective rate for credit card processing, which is the simplest and most accurate way of comparing overall costs between different providers.