This article will explain the fees involved with setting up and maintaining your merchant account.
Merchant Account OverviewA merchant account is a bank account except used specifically for business transactions. An account is usually set up between a merchant and a bank or PSP (payment service provider).
They are essential for any business or commercial organisation looking to accept credit and debit card payments either online, over the counter or by telephone or post.
Payment service providers, of which Paypal and Paypoint are two well known examples, usually deal specifically with online transactions and offer what are called internet merchant accounts (IMAs).
Comparing Merchant Account Fees
There are a number of fees associated with having an account which can vary from bank to bank, so it's important to do some research beforehand to compare merchant account fees. This will allow you to assess what each service offers your business to make sure you are getting the best deal available.
Fees are charged in a different way depending on how the payment was made. For example, paying for something by keying in your details using Chip and Pin will be handled differently than when your card is swiped using the magnetic strip on the reverse.
Charges are made for each individual card transaction, along with a set up fee, statement fee, monthly minimum fee, annual fee, early termination fee and don't forget customer service fee. Fees are also taken for the transaction between the acquiring bank to the issuing bank when swapping funds at the end of the day. Not surprisingly the processing of credit and debit cards for the Merchant can be quite high, probably second only to staffing and salary costs.
When a card is declined - not only is it embarrassing to the customer or client, it is annoying for the Retail Merchant too. Fees are charged (nuisance fees) when a card is declined and then re-swiped or re-keyed. The nuisance fees are high, so it's a nuisance to all involved.
Credit Card Processing Fees
Price per Transaction
Price per transaction credit card processing fees generally make up between 0.5 and 4% of a sale. The price is capped at 4%, which is now standard.
What a price per transaction fee means is that every time a card payment is processed, you will be charged a percentage of the sale. This ensures that you pay the merchant account provider a minimum sum per month.
Some providers offer a maximum fee, which is great for businesses who know their average monthly sales figures and can work out if this is a suitable investment.
To help cover fees, you can limit payments by card to over a certain value (£5 is a popular choice in shops) or even add an additional card processing fee to help reclaim your costs. The latter option can however prove to be unpopular with customers.
Some of the most popular merchant account providers, like Barclays, offer price per transaction fees beginning at around 1.5%, with the option to have fixed terms for the first year of contract.
Fixed pricing works in the same way as a ‘price per transaction’ fee, but it is a fixed fee rather than a percentage of the sale. This usually only applies to debit cards and the average charge is usually 5p per transaction although it could be as high as 30p depending on your provider.MOTO & Virtual Terminal Pricing
Pricing plans are available for those looking to take payments either online or over the phone. This will include a maximum number of transactions and therefore is a good plan for small business owners. If you go over the maximum transactions there will be additional fees to pay.
Paying a small fee to offer a service is better than offering no service at all. Customers who enter shops that only offer cash are likely to leave if they do not have any available. Offering card payments makes your business more flexible and likely to create more sales.
As customers now expect the majority of shops to accept card payments, being told that they are unable to pay when they’re already at the till can prove embarrassing and frustrating and won’t encourage them to return to your store.
Internet Merchant Accounts
An internet merchant account differs from a normal one in that it is specifically designed for transactions carried out over the internet. IMAs are offered either by banks or payment service providers (PSPs) like Paypal or Paypoint. IMA providers are often referred to as acquiring banks or merchant acquirers. IMAs also have the benefit of being less expensive than traditional merchant accounts, and their fees are quite low in comparison.
Having an IMA with a bank or a PSP has its own particular advantages. With a bank you have the security of knowing that they have years of experience dealing with business customers, and if you already have a business account with the bank, you also have the benefit that they know your history.
With PSPs like Paypal, the advantage is that they specialise in online transactions and commerce. PSPs will also give you a decision on your application for an account much more quickly than banks (typically within 48 hours) and generally their charges are much less than normal banks.
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