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Payment Processing Fees
Whether you use recurring billing, online payment processing, or swipe cards at your facility, accepting payments is part of doing business. In order to accept a credit card, businesses must have a payment processor or payment service provider (PSP).
Costs Associated With Payment Processing
Payment processing, as with most things, comes with associated costs in the form of fees and rates. Payment processing fees may be identified and charged to the seller as individual line-item fees or they may be rolled into the discount rate. The discount rate is the percentage rate charged on a transaction. The discount rate is paid by the merchant to their payment processor.
Entities Involved in Payment Processing
Fees are costs that are passed along the line from various entities that are involved in the payment processing funnel. Let’s take a look at the entities that are involved in the payment processing funnel.
- Acquiring Bank – The Acquiring Bank is the bank that accepts credit and/or debit card payments on behalf of the seller. The Acquiring Bank acts as the link between the seller and the bank that issued the credit card (Issuing Bank).
- Gateway – The Gateway is a company that provides the connection between a website, a terminal or any other credit card processing device and the credit card companies.
- Independent Sales Organization (ISO) – Also known as a Merchant Service Provider (MSP), the ISO is an organization that is not a direct member of VISA or MasterCard, but is registered and sponsored by a member to perform sales, solicitation, service, merchant transaction processing solicitation, cardholder solicitation or card application processing services.
- Issuing Bank – The Issuing Bank is the bank that issued the debit or credit card being used by the customer.
- Payment Processor – A payment processor is a company authorized to handle credit card transactions for Acquiring Banks. Payment processors enable businesses to accept debit and/or credit cards as a payment method for their transactions. A payment processor is often a third-party, and may or may not be a bank.
- Payment Service Provider – A payment service provider (PSP) is a third-party who negotiates deals with merchant banks in order to offer lower rates for processing debit and credit cards to sellers. Payment service providers are able to offer more than one type of card such as VISA and MasterCard. A PSP manages the relationship with the financial institution.
- Merchant – The business or entity that is selling goods or services and uses a payment processor to perform credit/debit transactions. Someone who buys and sells goods.
That’s a lot of hands in the transaction!
Types of Payment Processing Fees
The following list of fees may or may not be part of your payment processing charges. Some fees are a fixed amount per transaction, some are charged whether or not you have a transaction, and some are variable, transaction-based fees. Read your payment processing agreement carefully to identify which fees will be charged and the amount or percentage that will be applied for each fee.
- Address Verification Fee (AVS) – An Address Verification Fee may be charged by some companies for card-not-present transactions.
- Annual Fee – The annual fee is usually charged in addition to other fees and discount rates. This fee is generally used to offset costs of maintaining a merchant’s account.
- Authorization Fee – An amount charged to the merchant each time communication is made between the credit card processing software or Point-of-Sale (POS) system and the authorizing network. This fee may be charged in addition to the discount rate applied to the transaction and is usually a fixed amount.
- Transaction Fee – A per-item fee that is charged based on the brand of card accepted. This fee is set by the bank card network that issues the card. This fee may differ based on how the credit card data is supplied: card-present, card-not-present, or keyed in. The Transaction Fee used to be called an Assessment Fee.
- Chargeback Fee – An amount charged to the merchant for processing a chargeback.
- Electronic Interchange Reimbursement Fee (EIRF) – A VISA fee that is charged to the merchant when a credit card is not present, the swipe is not read, and the card number is manually keyed in.
- Gateway Fee – Costs charged by companies that manage or own access to the networks that handle financial data processing of credit card purchases.
- Interchange Fee – Also known as Merchant Fee. The amount an acquiring (merchant) bank pays an issuing (customer) bank via bankcard associations for the transaction passing through the interchange. Usually refers to when a merchant processes transactions with cards in the VISA and MasterCard associations. This can be the highest fee of the bunch.
- ISO/MSP Fees – Amount an Acquiring Bank pays the ISO (Independent Sales Organization)/MSP (Managed Service Provider) for services provided such as soliciting merchants and customer service.
- Monthly Minimum Fee – the minimum amount that will be charged to the merchant’s account if a merchant’s processing fees do not equal or exceed the monthly minimum. If the monthly minimum is not met, an amount equal to the difference between the actual fees charged that month and the minimum will be added to the merchant’s fee totals for the month. Usually monthly minimums help the PSP to maintain lower overall rates, benefiting merchants using their services.
- Merchant Support Fee (Customer Service Fee) – Fee charged for maintenance provided in the form of support and service to the merchant.
- Return Item Fee – A Return Item Fee is charged when a refund is made on an already processed transaction.
That’s a lot of fees, too!
What Is Included?
Not all fees are charged to a seller. Some are charged between entities and reflect in charges to the seller or in the discount rate available to the seller. Discuss what fees will be charged in addition to the discount rate when shopping for a payment processor.
Don’t just look at the great rate – there may be fees that increase your cost sufficiently so that a higher rate, with fewer fees, makes more sense and is more cost effective.
Affiliated Acceptance Corporation goes beyond just processing payments. We follow-up on declined transactions, member retention, and handling disputes and chargeback resolution.
All materials have been prepared for general information purposes only to permit you to learn more about Affiliated Acceptance Corporation and the services we provide. The information presented is not legal advice, is not to be acted on as such, may not be current and is subject to change without notice.