As a merchant who accepts credit cards, you probably believe that credit card processing
has many benefits for your business including drawing in customers, simplifying record
keeping and boosting your bottom line. You might even consider the fees you pay your
merchant services provider to be a business expense that pays off for you.
However, you may agree with fellow merchants who complain that their monthly merchant
account statement is about as easy to decipher as ancient Egyptian hieroglyphics. As with
most things in life, a little information can go a long way towards clarifying your statement.
For starters, it's important to understand who the players are in the credit card processing
industry. They include your processor (also called a merchant services provider or
acquirer), the card associations and the issuing bank.
When you process a sale, your processor routes the transaction to the appropriate card
association network (Visa, MasterCard, Discover or American Express), which sends the
transaction to the issuing bank for authorization. The processor handles a number of other
important duties such as providing technical and customer support, handling chargebacks,
depositing transaction proceeds into your merchant account and issuing your monthly
statement.
That statement lays out each month's credit card processing fees and charges. Some, like
the discount rate, are controlled by the processor while others are dictated by the card
associations and issuing banks. For example, the associations and banks set the interchange
fees, which are basically the wholesale price for processing a specific card type (credit,
debit or rewards card, for instance).
The processor incurs expenses for the merchant services it provides that are passed along
to the merchant. Some of the most common fees are an annual membership fee, a terminal
support fee, a monthly minimum fee (usually charged to low-volume merchants), a monthly
gateway fee and per-transaction fee for eCommerce merchants, a monthly service fee and a
statement fee. Another charge that you may have recently noticed on your statement - an
IRS report fee - covers the new requirement that processors must report their merchants'
processing information to the federal government.
All fees and charges for your specific account should have been outlined by and negotiated
with your merchant service provider before you signed your contract. If you find it difficult
to understand your monthly merchant account statement - or if you have questions about
some of the charges listed - ask your account representative to explain them to you.