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Credit Card Processing Comparison Equals Cheapest Merchant Account

Updated: Dec 26, 2023


“Discount Rate as low as 1.19%! Free merchant account!” Sounds nice, doesn’t it. This ad looks really attractive on websites or ad slicks. These are two examples of misleading marketing at its finest. Merchant account providers know that everyone wants the cheapest rates and lowest monthly fees. Of course, we all want the best deal when we make purchases. However, no aspect of a merchant account is truly free. The banks’ boards of directors and the credit card associations with their investors didn’t wake up one day and say, “Why don’t we just give away credit card processing for free? This will be our contribution to humanity!” That would be absurd. Banks are doing business to make money. You are accepting credit cards at your business because someone thinks that this is a great way to make money. Therefore, without knowledge of the true processing costs that merchant account providers and their banks incur, you would never be able to discover the best price for a merchant account. What I am going to do in this chapter is explain what to look for in a credit card processing comparison and what to avoid while getting the best deal on your merchant account.

The first principle I would like to make clear is that a LOW DISCOUNT RATE DOES NOT MEAN you have the CHEAPEST merchant account. There are so many other fees that go into a merchant account – fees that all add up to the total monthly cost you will pay. There are fees such as the transaction fee, downgrade fees, statement fee, annual fee, batch fee, AVS fee, and PCI fee. I will explain these fees in detail shortly. It is good to keep in mind that many of the charges you will incur are not stated so clearly on the merchant application or monthly statement. If all the rates are stated clearly, then someone also needs to take time to explain what these rates mean. Is this done by accident? Is this an oversight? Not at all! Many merchants simply do not have the time to investigate what all the miscellaneous fees are and would rather just stick to asking the simple question, “What is my discount rate?” Merchant account providers realize this and therefore continue to cater to this mentality by printing the discount rate in larger and larger text on ad slicks, websites, and merchant account applications.

Is this wrong? I don’t believe so, provided they are stating all the rates and fees clearly. This being said, is choosing a merchant account based on the discount rate going to get you the cheapest account? Definitely not! What can you do to ensure you are getting the best deal? Know what your business needs are and do your homework! This is where a credit card processing comparison comes in handy. Research several companies and save your gathered information in an excel document in order to compare key features and fees (see image below for an example). This will keep all your notes organized and help you weigh your options. Then you will quickly see the bottom-line expenses for each company. You will also need to know what your business needs are. Do you swipe the transaction or key it in? Are the purchases made in your business small or are they several thousand dollars? This information is critical to determining how much you will pay. While researching several companies, be sure to retain their contact information just in case you have a quick question for the company you are thinking of doing business with.

Now let’s talk about the various fees you might see on your next merchant account application or processing statement (Some fees may be worded slightly differently). By understanding these well, you will be in a much better position to evaluate each company’s offering. Please keep in mind this is not an exhaustive list. If you are being charged fees that are not listed here or you do not understand them clearly, it might be good idea to ask your merchant account provider why you are being assessed that particular fee or charge.


Account Maintenance – This is charged by a provider to perform information changes to a merchant account after the initial setup. This is usually a per instance fee. Also known as a Change Fee. This can also be called an Admin fee of Service Fee.

ACH Reject Fee - This is charged when a processor tries to electronically withdraw charges for processing services and there is an insufficient balance in the merchant's bank account.

Annual Fee – This is a fee that is charged every year to maintain your account. Application Fee – This is a fee charged to apply for a merchant account.

Authorization Fee – This is also known as the Transaction fee and is charged every time you attempt to process a credit card transaction. It may also appear as a WATTS fee on some statements.

AVS – The AVS or Address Verification Service is charged as an added service to verify that the customer’s billing address and zip code matches with that listed on the credit card holder’s account. This is an added security feature to help prevent chargebacks when used with ecommerce or card-not-present merchant accounts.

Batch Header – This is a per instance charge whenever a merchant sends a batch of credit card authorizations to the bank for finalizing the transactions and releasing the funds. This fee is a small per item fee similar to the transaction fee.

Cancellation Fee – This fee is charged whenever the merchant attempts to cancel the merchant account prior to the time period outlined in the merchant account agreement (contract).

Chargeback Fee – This fee is assessed every time the customer disputes a charge with their bank and wins the dispute against the merchant.

Debit Network Fee – This is a monthly service fee charged to accept PIN debit cards.

Discount Rate (Qualified) — This is the most common percentage rate charged to the merchant each time a credit card is accepted. It is called a “discount” rate since it is the lowest percentage rate charged to a merchant.

Dues and Assessments — This is a small percentage fee assessed by Visa and MasterCard towards a merchant’s monthly sales volume. This money goes straight to Visa and MasterCard respectively.

Early Termination Fee – This fee is charged whenever the merchant cancels their account prior to the terms stated in the merchant account agreement. This may be assessed in addition to a cancellation fee.

Internet Gateway Monthly Fee – This is an additional monthly charge assessed for processing credit card transactions over the internet. With this scenario, the merchant would likely log in to a website enter credit card data on a web form.

Internet Gateway Transaction Fee – This is an additional per item charge assessed for processing credit card transactions over the internet.

Help Desk – This is a monthly or per instance fee assessed allowing the merchant to telephone the customer service department for account-related or technical support issues.

Mid-Qualified /Non-Qualified Rate– These fees are also called downgrade fees and are assessed as an additional surcharge above the Discount Rate for transactions that do not qualify for the discount rate.

Monthly Minimum - A merchant account monthly minimum is the lowest dollar amount in processing fees that a merchant will have to pay per month. This is also called the Monthly Minimum Discount and is only applied towards the qualified discount rate. This means that a merchant who has a monthly minimum of $25 will be charged at least $25 in discount fees plus any other fees assessed such as the monthly statement, mid-qualified and non-qualified surcharges as well as any transaction fees.

Over Limit – This fee may be assessed if the merchant processes more credit card volume than allowed for their merchant account.

PCI compliance – A fee charged to cover the cost of securing cardholder data. This could be assessed monthly or annually.

PIN Debit – This is a per instance fee charged every time a merchant accepts a payment card where the customer enters in a 4-digit PIN number.

Reprogram Fee – This fee is charged by the merchant account provider to reprogram or

re-download a merchant’s existing credit card terminal when they switch to the new service.

Reserve Account Maintenance – This fee is assessed if the credit card processor places the merchant on a rolling reserve. A rolling reserve is an additional holdback percentage in addition to the standard account fees and is held back for the first six months to maintain reserve funds in the case of excessive chargebacks or other risk-related issues. If your account is placed on a rolling reserve it means that your account is considered high-risk and may experience additional funding problems while processing.

Retrieval/12b Letter Fee – This fee is charged every time a merchant account provider requests documentation from the merchant to dispute a chargeback.

Return Fee - This is a percentage fee or transaction fee assessed whenever a customer returns merchandise and seeks to have the funds placed back on their credit card.

Set-up Fee – This fee is charged in order to set up a new merchant account.

Signature Debit/Offline Debit/Check card – This is a discount fee (percentage) charged for accepting credit cards that debit the funds straight out of a customer’s checking account.

Statement Fee – This is a flat monthly fee assessed to receive processing statements in the mail. Some merchant account providers will call this a customer service fee so even if a merchant requests to have online statements instead of receiving paper ones, they may still be charged this fee.

Voice Authorization – This is a per instance fee charged if the merchant has to call the processor to verbally authorize a credit card transaction.

Wireless Gateway – This is a monthly fee for accessing a wireless network with a wireless credit card terminal to complete sales.

Wireless Transaction Fee – This fee is charged as an additional transaction fee for accepting payment over a wireless terminal.

credit card processing comparison

Now that you are familiar with the various charges that can appear on your merchant statement, you can start negotiating your merchant account based on your processing needs! Clearly, there is much more that goes into determining the true cost of a merchant account than the discount rate…..TO BE CONTINUED IN PART 2



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