Unlike other eCommerce platforms, we don’t charge any transaction fees at LemonStand. We believe that the money you earn is yours to keep.
Unfortunately, the credit card companies and banks don’t feel the same way. So if you’re accepting credit cards online, you’ll end up paying fees on every charge. Even worse, there are a number of players involved, and everyone wants a piece of the pie, so things get a little complicated.
To make things more transparent, our friends at Merchant Maverick have created a helpful infographic on eCommerce credit card processing fees and rates. Let’s look at the important points first.
Who Is Involved?
Let’s start by looking at all the different companies that are involved in making a credit card payment online. This is eye-opening, so find a seat first.
The companies involved come under 4 groups –
- Credit Card Associations – Visa and MasterCard are examples of credit card associations. These companies operate the entire network and set the rules.
- Credit Card Issuing Banks – On your Visa or MasterCard, you’ll notice a bank logo as well. That’s the bank that issued your credit card.
- Processors and Merchant Account Providers – As an online retailer, you’ll need a merchant account. These are the companies you go to.
- Payment Gateways – The last piece of the puzzle is how you actually collect payments online. You need to use a payment gateway, like Authorize.net, for that.
So now that you know who’s involved, let’s see how they fit into a simple online payment. When the customer checks out on your store, there’s a field to enter credit card details. That’s the payment gateway.
The payment gateway sends the information to the processor (your merchant account provider) for… processing! Your merchant account will then take the payment from the customer’s credit card association, who in turn take it from the issuing bank.
Types Of Fees
So every player charges a fee. Yeah, when someone buys from you, everyone else gets rich! In general there are three types of fees – flat fees, incidental fees, and transactional fees.
Flat Fees
These are primarily charged by payment gateways though credit card processors might charge them too. As the name suggests, you have to pay these fees on a regular basis, regardless of how much you do in sales. There are three types of flat fees – standard, add-on, and junk.
Standard Fees are predictable and are usually paid every month. They can be:
- Monthly Fee – This is your base processing fee for using the service, paid monthly.
- Monthly Minimums – Some companies charge a minimum fee, so if your regular monthly fee is lower than the minimum, you’ll pay the minimum.
- IRS Report Fee – This fee covers the cost of your annual IRS filing, though some processors include this in their base price.
- PCI Compliance Fee – For processors that are PCI compliant, they might offset their compliance fee to you.
Add-on fees are for extra services that you might want. They can be:
- Terminal Purchase Fee – This is for when you purchase a payment terminal for your retail store
- Terminal Lease Fee – If you’re leasing the terminal, and you shouldn’t, you’ll pay this.
- Terminal Insurance Fee – When you get a “free” terminal, expect to pay this.
- Merchant Club Fee – Some processors have a “club” where their merchants get free printing paper and other goodies. It’s usually not worth the money.
Junk Fees, as the name suggests, are just made up fees to take more money from you. Watch out for these:
- Early Termination Fee – Unless you’re in a contract, you shouldn’t be paying this when you close your account.
- Annual Fee – If you pay a monthly fee, there’s no reason to pay an annual one.
- Statement and Online Reporting Fees – These should be included in your monthly fee, so don’t pay them twice!
- Set-up Fee – you set up your account yourself, so you shouldn’t be paying a setup fee.
Incidental Fees
You only get charged an incidental fee for certain incidents like a chargeback. Here are some things that can trigger an incidental fee:
- Address Verification Fee – Watch out for this one because it gets charged on every transaction to verify a customer’s address.
- Retrieval Request Fee – This fee is part 1 of a chargeback, where there’s a request to be processed.
- Chargeback Fee – This is the actual chargeback fee after the chargeback is verified. Mind you, this is in addition to the amount you pay back to the customer.
- NSF Fee – The Non-Sufficient Funds fee is a penalty for not paying your regular fees.
Transactional Fees
These fees happen every time there’s a transaction and form the bulk of your payment-related costs. They are:
- Interchange Reimbursement Fees – Every credit card transaction has an interchange fee that’s determined by credit card associations. They are usually a percentage of each transaction and a flat rate, like 1.50% + $0.10 per transaction.
- Dues and Assessments – These are non-negotiable fees based on the total transaction volume for each month.
Pricing Models
Ok, so that’s definitely a lot of fees, but payment companies have different ways of packaging them up so that you don’t get overwhelmed. They have models like Tiered Pricing, Interchange-Plus Pricing, Subscription Pricing and Blended Pricing. Each model varies in terms of transparency and consists of different combinations of the aforementioned fees. It’s tough to explain in text, so have a look at the infographic.
Courtesy of MerchantMaverick.com