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Merchant Account Providers are numerous in today's world, but what separates one from another? One of the main things to keep in mind when choosing a merchant account provider is what types of costs and fees are associated with doing business with them. There are multitudes of ''names'' associated with the different costs and fees, but the usual breakdown is as follows:

  1. Set-Up Fee (start-up fee, up-front fee)
  2. Fixed Fee (statement fee, on-going fee)
  3. Transaction Fee
  4. Discount Rate (commission)
  5. Termination Fee
  6. Miscellaneous Fee

Set-Up fees are straightforward. This is what you have to pay to begin doing business with them. The fee usually covers the costs associated with processing your application. Some merchant account providers don't have set-up fees or will waive them. It is always best to look for someone who does not have any set-up fee associated with using them. The fixed fee is basically a fee that you have to pay monthly to continue to work with the merchant account provider. This fee is most often referred to as a statement fee and very few merchant account providers don't require it under some ''name''. Generally, try to find a merchant account provider who does not charge any more than $10.00 to $25.00 a month for this type of fee. The transaction fee is a very simple fixed fee that is required for every transaction that is made. If you make 100 sales in a month and therefore charge 100 credit cards, then you will pay the fixed amount times 100 for that particular month. This fixed transaction fee is usually $0.20 to $0.30 and is not reflective of the cost of the product or service. The discount rate is the sales commission the merchant account provider retains for each transaction. This rate is usually between 2 and 5 percent of the transaction. As an example, if you have a 2% discount rate and make a $100.00 sale then you will see a discount rate (fee) of $2.00 that will be due the merchant account provider for the transaction. Termination fees are simple fees that are due if you decide to cancel the contract prior to the signed termination date. Make sure to read your contract closely to know the length of the contract. Typical contracts are for 1 year. Lastly, there are always potential miscellaneous fees that merchant account providers will attempt to include in the contract. These could be for the handling of credits to cards for returns or handling extra large transactions or things of this nature. Always read your contract carefully for any ''extra'' fees.

Putting all these fees into perspective is the only way to make a decision regarding how to choose the right merchant account provider. Make sure when you read the contract you list separately what all the fees are for doing business with this provider. Then you can make simple calculations regarding what the percentage of your sales will be for the merchant account provider. As an example, let's see what the percentage of sales that would go to the provider would be for the following company selling t-shirts online:

Company ABC sells t-shirts online for $20.00 each. They usually sell 100 shirts per month with approximately 10 being returned for credit. They have chosen DEF Merchant Account Provider with the following costs and fees:

Set-Up Fee: Free
Fixed Fee: $5.00 per month
Transaction Fee: .25 per transaction
Discount Rate: 3%
Termination Fee: None
Miscellaneous Fee: $10.00 per credit issued

The company could easily calculate the percentage of sales that will be due to the merchant account provider at the end of the month:

$5.00 for monthly fixed statement fee
$25.00 for transaction fee (100 sales X .25 per transaction)
$60.00 for the discount rate (3% of $20.00 X 100 transactions)
$100.00 for miscellaneous fee for returns (10 returns X $10.00 each)

The total of the costs and fess due to the merchant account provider at the end of the month is $190.00. Therefore, out of the $2,000.00 the website made in sales dollars they would owe $190.00 (9.5%) to the merchant account provider.

As you can tell by this simple example, it is crucial that you weigh all of the different costs and fees when deciding which merchant account provider to go with. It is also very important to read all of the fine print of the contract to ensure that you are not surprised by any hidden miscellaneous fees.

This Web Marketing article was written by Malcolm Young on 9/26/2008

Malcolm Young is a financial services entrepreneur.