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Surprises and Hidden charges with some Merchant Accounts

Don't be misled by the Bank's Discount Rate.
There are different rates for different situations:

  • A "qualified" rate means the card is physically swiped through a terminal or card reader. Information is read directly off the card and is sent directly to the processor. It poses the least amount of risk and is the least expensive.
  • A "Non-qualified" rate means the card is not available to swipe through a terminal. The information on the card is manually entered into the processing system.
  • Rates will be lower if an "Address Verification System" is used.
  • The bank's discount rate will apply to the processing of credit cards issued to consumers. The rate will be higher for Business and Corporate credit cards.
  • Clarify the length of time the initial discount rate will be in effect, before the bank makes a rate adjustment.

Make sure the discount rate that is advertised or promoted is the rate that applies to your situation.

Don't just look at the rates alone and overlook other costs.

Terminal Leases

Costs easily hidden and usually not included in the quoted monthly payments are a finance charge, your state's sales tax rate on the lease, an annual equipment depreciation charge, and possibly a charge for insurance to cover loss or damage to the terminal. These additional costs may be added to the quoted monthly payment, or you might be billed for them. You may end up paying three times the cost of the terminal, and still not own the terminal when the lease is up. Then if you want the terminal, you must pay a fair market buyout.

The "Reserve"

Some companies require a "reserve" which protects them against chargebacks. You may have to pay the reserve in advance, similar to a deposit. More likely, there will be a reserve fee held back from your transactions, and kept in a reserve account as insurance against chargebacks. The reserve will be kept for several months after you terminate your merchant contract. If it is not overlooked, you would eventually get the funds held in reserve, but not the interest the funds collected.

Monthly Minimum

When you setup your account, you will likely be asked about the amount of charges you expect to submit each month. This amount will allow the bank to estimate the amount of the fees the bank will collect. Some banks will then set a monthly minimum fee. If you do not submit enough charges for the bank to collect the monthly minimum fee, then you would be charged the difference.

The bank discount rate might also be tied to the amount of monthly charges. If your charges are under a certain amount each month, the bank may take a larger percentage.

Bank Setup Fee

Not all contracts have a bank setup fee, but when there is one, it is a fee that is typically not discovered until the contract is ready to sign.

Fraud Protection and Address Verification

Rates will be lower if you use a fraud protection system or address verification, but there will be additional charges for using these systems.

Access Fees

The toll free 800 number you use for processing may be emphasized, but sometimes there is an access charge for using the service which is barely mentioned.

Gateway Fees

Some companies have a proprietary payment processing system. Others use a third-party card processing service, and will likely charge a monthly gateway fee to cover the cost of using the third party.

Voice Authorization Fee

If your terminal goes down or you can not get through, you will need to dial a voice authorization number to process your charges. Some companies charge a fee for this service.

Other Fees

Batch Fees, Daily Close-out Fee, Programming Fees, Annual Renewal Fee. Make sure you understand all the terminology in the contract. Don't sign a contract with anything left blank.

Clarify when the funds will be available

Don't let yourself be misled about how long it will take for the money to actually get into your bank account. Your bank account will be credited for the funds before the money is actually available for you to use. Credited to your account does not necessarily mean available. Clarify the terminology.

Read the fine print in the contract

Here is the "fine print" that comes with Costco credit cards. This verbiage is typical in the industry.

"Rates listed are for qualified transactions. Reward cards process at a higher rate. A monthly minimum charge applies when qualified transaction fees and per-item charges are less than $20 per month. Annual interchange or assessment increases by Visa/MasterCard or Discover may affect these rates. Rates and fees may change without notice. Rate and acceptance are subject to underwriting."

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