Because of this fundamental need, most businesses end up opening a merchant account. With a merchant account, your business can accept credit and debit card payments. Before opening a merchant account, you have to evaluate the types of fees that you will have to pay for this service. Most merchant account providers have a number of fees that you’ll have to pay in order to process transactions. Figuring out how much you’ll have to pay can be a challenge, but with a little bit of research, you should be able to get a good idea.
One of the basic fees that you will have to pay when using a merchant account is the discount rate. This is a specific percentage of each transaction that will go towards the financing company. For example, if you accept a credit card payment, the discount rate may be 2 percent. This means that if someone makes a $1,000 purchase with a credit card, the merchant account provider will automatically get $20 from the transaction. When shopping around for a merchant account provider, the discount rate is one area that you should compare. Finding a provider with a smaller discount rate could save you a significant amount of money in the long-term.
Another way that merchant account providers make money is with transaction fees. Regardless of the size of the purchase, the merchant account provider will typically charge a transaction fee. This is a flat fee that is charged on every transaction. For example, the transaction fee may be $.20 for each purchase. While this may not seem like much, it can add up over time.
In addition to the transaction fee, some merchant account providers also charge an extra fee for accepting a debit card transaction with a PIN pad. This means that if you offer your customers a PIN pad to use with debit card transactions, you’ll probably have to pay another fee for this service. The fee can vary from somewhere between $.50 and $.70 per transaction.
If you’ve ever used a merchant account, you know that at the end of the day, you have to settle the account to get the money into your bank account. Some merchant account providers charge a settlement fee for each day that you do this.
Once you’ve determined what your merchant account provider charges for all of these items, calculating the fees is simple. You will simply multiply the discount rate by the total amount charged. Then you need to add all of the various transaction fees to that amount. For example, on a $100 purchase, you may have to pay a discount fee of $2.00. Then you add a $.20 transaction fee and a $.50 debit card PIN fee. This gives you a total transaction cost of $2.70 on a $100 purchase. To calculate your costs for the day, you would do this with each transaction and then add the settlement fee on top of those costs.
Many business owners fail to take these costs into consideration when opening a merchant account. If you are not careful, these costs can significantly cut into your profit and make it so that your prices are no longer profitable. Some merchants have to raise prices in order to compensate for these costs.
