When an entrepreneur decides to open his new business and offer a product or service for sale, the first order of business is to unravel the rules around getting payment. That decision leads to the dizzying world of credit card processing and gateway fees.
When a company or business decides to accept credit cards as a form of payment, they get the advantage of not having to judge the credit worthiness of each customer. However, in return, they are required to pay a certain number of gateway fees. Various payment gateway services charge to allow the transfer of funds from the buyer to the credit card through the banking system to the seller. To process credit cards, a firm must first obtain a bank account to interact with the banks that issued the consumer’s credit card. This account is called a merchant account and is the start of the fee process. Although time consuming, it pays to comparison shop merchant banks and other credit card processing companies to compare rates and services. All banking costs and gateway fees contribute to a company’s overhead.
Merchant accounts charge any number of fees relating to the operation of the account. Some of these are a percentage or per item cost and some are periodical. There are fees called discount rates that cover assessments, network charges and dues associated with accepting credit cards. The largest in this group is the interchange fee charged by the credit card company, for example Visa or Discover, for the processing of each transaction. These interchange fees reflect the costs of processing a transaction and have differing rates or tiers which depend on the way the transaction is entered into the system or if the card is a rewards program card. The credit card company sets the exact percentage for each type of transaction and the tier system varies between companies.
There are additional fees related to the costs of when a transaction goes wrong. There are nuisance fees for swiping a card a second time after being declined, chargeback fees when a customer disputes a charge and wins or identity theft victims, batch fees for sending the daily charges to the merchant account for processing and statement fees, annual fees and early termination fees.
Due to the time and cost of sifting through and identifying these various fees, many businesses choose an Independent Selling Organization/Member Service Provider to provide a complete service. A reputable ISO/MSP will have a comprehensive merchant fraud protection program and be committed to low credit card processing rates. Additionally, these types of firms offer tools to help with accounting issues and technical support as well as provide terminals and website payment