The Credit Card Processing Fee

The credit card merchant fee is actually a series of fees that vary depending on individual merchant agreements. When you are ready to begin shopping for a merchant account, it’s clear that accepting credit cards online (over telephone, at retail, etc.) via a merchant account puts you in control and limits your reliance on outside payment processing services.

You will quickly discover, however, that taking payments through an online (or other) merchant account creates a puzzle of credit card processing fees. Besides an Internet merchant account, you will also need a shopping cart, store or site host, processing service and secure payment gateway. Each vendor is happy to charge yet another credit card processing fee for its services.

How those fees are structured will depend on how your merchant account puzzle fits together. On one end of the spectrum you can choose each vendor individually, which can result in paying small credit card processing fees to multiple service providers.

Alternately, you may choose a turnkey solution where the credit card merchant account provider sells you a pre-assembled merchant account puzzle. In this case, you may pay higher credit card processing fees to fewer providers. Processing fee totals may be higher or lower with a turnkey solution, depending on the specific credit card providers’ fees.

There is no single best solution to credit card processing. Your choice will depend on your particular needs and experience. Among other considerations when choosing providers and deciding how many (and which) credit card processing fees you are willing to pay factor in your personal comfort with the technologies, customer convenience, providers’ customer service, available technical support, reliability, costs and time commitment involved. No matter what your choice, expect to potentially pay several fees associated with your credit card merchant account.

Processing Fees for Credit Card Merchant Accounts

There are a myriad of credit card processing fees involved in putting together an ecommerce Web site, retail store, catalogue or mail-order business. Each offer results in different types of fees, making it difficult to compare processing fees across different credit card options.

Potentially, you could be charged a credit card processing fee by each provider involved with your credit card merchant account  — application fees, set-up fees, yearly memberships, monthly statement charges, monthly minimums, gateway access fees, statement fees, fixed transaction fees, variable transaction discount rates (i.e. a processing fee for each transaction) and merchant account cancellation penalties are all common.

Because there are so many credit card processing fees to look for it is easy to misinterpret the fees. Rarely, it seems, are all processing fees and minimums revealed in one place.

Credit card merchant account fee quotes, for example, may not include gateway access, hosting, and/or a shopping cart processing fees. Because you may be comparing “apples to oranges,” options that at first appear low cost can — upon execution — turn out to be pricey. Similarly, expensive-sounding solutions may actually be all inclusive and — in an “apples to apples” comparison — turn out to have reasonable costs.

Types of Credit Card Processing Fees

There are a variety of fees you may encounter when setting up a credit card merchant account. If a potential merchant account / credit card provider does not mention one or more of the following credit card processing fees, ask if the fee (fees) is (are) included:

Application fee. A charge to process your application for a credit card merchant account.

Yearly membership. Additional annual credit card processing fees may be required to accept credit cards for certain specialized industries. You may also be required to purchase a membership in addition to other processing fees if you sign up for a merchant account through a trade organization or other group. These accounts often include perks such as lower minimums or low/no set-up fees. The Costco credit card merchant account, for example, has an attractive fee structure and is available to Executive members (Costco Executive membership fee is $100 annually at time of this writing).

Set-up fee. A fee or fees charged to process and activate your merchant account and/or gain access to a secure Payment Gateway.

Gateway access fees. A fee for using the secure server (such as to approve and process transactions. Depending on arrangements with the payment gateway processor, your credit card merchant account may include gateway processing fees as a separate line item or as part of the monthly processing fee.

Monthly statement charges. Some institutions charge fees to generate and process a monthly statement.

Discount rate. A credit card processing fee charged to process each transaction, based on a percentage of the transaction’s dollar amount. The rate is based on risk associated with the transaction and will likely be different for each type of credit card transaction you process. An online transaction processing fee, for example, is generally a higher discount rate than the in-person retail rate because the associated risks are higher.

Address Verification Service (AVS). A separate processing service that cross-checks your customers’ credit card number with the mailing address. The small per-transaction credit card processing fee is sometimes included in the discount rate.

Fixed transaction fees (charged in addition to discount rate). Flat fees you pay for every credit card transaction processed.

Monthly minimums. This is a “floor” on the amount of credit card processing fees you pay for your merchant account and applies if other fees total less than the minimum.

Cancellation penalties. Additional processing fees if you discontinue your merchant account.

Chargebacks / reversal fees. Additional credit card processing fees if your buyer protests a charge and it is subsequently reversed and/or if a transaction is reversed for other reasons.

In addition to merchant account processing fees, you may also need additional software and/or hardware to make your merchant account operate. Your requirements will vary depending on what kind of transactions you take, how you process them, and what vendors you choose. Remember to discuss these requirements with your merchant account processor and any other merchant account service providers.