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What is a Monthly Minimum and How Does it Work?

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monthly minimumSo you’ve got the best credit card processing rates in town, you’ve purchased your terminal instead of leasing, and you’re ready to start saving big on your monthly bill as a responsible, well-informed merchant. BUT, before you get too excited, let me show you how a monthly minimum fee could double your credit card processing expenses.

Most merchants think that low rates are the most important attribute to look for in a processor when trying to reduce cost. And for those processing a high volume of cards every month, this can be true. For lower volume or sporadic processing, however, nothing will mean more to you than a monthly minimum. Unfortunately this remains one of the most confusing and misunderstood numbers for beginning merchants, and something that many sales agents will mislead you about.

But what is a monthly minimum? To start, here’s what the monthly minimum is not:

  • The minimum amount of money you must process each month
  • The minimum amount you will have to pay your processor

The second guess is close, though. Here’s what it is:

  • A monthly minimum is the minimum amount you must pay in processing fees to the provider.

If you do not reach this minimum number, you will be charged the difference as a fine. Only your processing fees count toward this, NOT your statement fee, gateway fee, PCI compliance fee, chargeback fees and so on. These will be paid on top of the monthly minimum.

Think of it like a phone plan with monthly minutes. By accepting a monthly minimum of $25 (the industry standard), you are prepaying for, say, $10,000 in processing minutes. Whether you use them or not, you’ve paid for them. And guess what? They do not roll over. Use it or lose it. Does this sound like a fair deal to you? Me neither. Especially not when you can find plenty of providers offering interchange-plus with no monthly minimum required.

Monthly Minimums and Interchange-Plus

99.9% of the time, interchange-plus rocks and will save you money. Let me show you the missing 0.1%.

If you don’t know what interchange-plus pricing is you should read this article, but here’s the gist: With interchange-plus, you only pay a markup percentage over the actual cost to run a transaction through the card networks (called interchange). So your fees will only be about 0.10 to 0.30% with a transaction fee of $0.00 to $0.10. The remainder of the processing cost (averaging at about 1.8%) goes directly to the card networks.

If you have a monthly minimum on an interchange-plus account, you better be processing a substantial amount of money. Remember that only the processing fees paid to your provider count toward the monthly minimum. So lets say you have an interchange-plus plan at 0.25% and $0.00 per transaction. You will have to process over $10,000 each month to avoid paying a monthly minimum fine if you have a $25 monthly minimum.

How to Figure Out Your Minimum Processing Cost

So now consider this. Your average retail merchant account has the following scheduled fees:

  • Statement fee: $10
  • PCI compliance fee: $8 (assuming $96 annually)
  • IRS reporting fee: $2 (assuming $24 annually)

This is what a generally affordable retail merchant account will require in monthly fees, equaling about $20 altogether. This is what you’ll pay even if you don’t process a single transaction. Well, if you have a $25 monthly minimum, this shoots up to $45 per month as your minimum monthly charge, more than doubling your cost for just keeping the account open.

Even if you process $2,500, you’ve still thrown away $13.75. This would increase your rate by 0.55% per dollar!

Stay Away From Monthly Minimums

My advice to you: stay away from monthly minimum charges. A lot of sales agents will claim that you need to have this charge in order to qualify for cost-plus (pass-through) pricing. Do not accept this. The monthly minimum is even harder to reach with interchange-plus pricing since only the markup counts toward the minimum (unlike tiered plans, which are in general more expensive).

Here’s a brief list of providers that offer interchange-plus without a monthly minimum:

Tom DeSimone
Based in New York’s Hudson Valley, Tom has written for Merchant Maverick since 2013 and currently serves as the website’s managing editor for payment processing content. His work is cited by publications including TechCrunch, Washington Business Journal, and Bank Advisor. Press seeking expert comments for stories related to credit card processing can reach him via LinkedIn for a prompt reply.
Tom DeSimone
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