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Guide to Payment Processing Fees


The following fees are industry standard fees.  This means they are common to all payment providers.  Most don't disclose all of these fees, much less attempt to explain them to you.


Discount Rate

This is a fee charged for credit card sales.  It is determined by the individual card association - VISA, MasterCard, American Express, Discover, etc. - and expressed as a percentage of the sale.

By allowing your business to accept credit cards, the card associations are basically giving your business an unsecured line of credit.  This Discount Rate covers the cost involved and takes into account the risk involved for issuing that line of credit.

VISA & MasterCard have a complex rate system called Interchange, which determines the rate a business pays for a sale processed by their networks.  There are somewhere around 50+ Interchange categories per card association, each having their own qualification criteria.

To simplify the VISA & MasterCard Interchange process, a tiered discount rate structure is used:

  • Qualified Discount Rate: This is the quoted rate at which your business will process credit sales.
  • Mid-Qualified Discount Rate: This is added to your qualified rate if a sale is downgraded - mostly for: keyed standard cards with AVS; swiped corporate cards.
  • Non-Qualified Discount Rate: This is added to your qualified rate if a sale is downgraded - mostly for: keyed standard cards without AVS; keyed corporate cards; not closing a batch within 24 hours.


Transaction Fee

This is a flat fee charged for each sale you process.  You will find this type of fee associated with all payment types: credit card, debit card, and electronic checks; also for gateway usage: wireless gateway, and internet gateway.


Address Verification Service (AVS)

AVS is a service that helps prevent fraud.  It validates your customer's address against addresses on file at the financial institution of the card being used.


Batch Fee

When you close a payment batch to receive payments for your sales, your processing equipment sends a settlement request across the processing network - this fee is a result.  It usually only happens once a day at the close of business.


Monthly Statement Fee

Most providers call this a monthly statement fee, but it also helps cover cost associated with account maintenance, customer service, technical support, and settlement services.


Monthly Minimum Fee

This fee is only charged if your processing fees do not equal or exceed the monthly minimum amount.  You are only charged for the shortage between the two.  If you have a monthly minimum of $25 and your sales for the month produce $20 of discount fees, you would only pay $5.


Annual Fee

This fee is charged to your business once every year to help cover cost for the services provided.


Application Fee

This type of fee is charged to process your application when applying for a new merchant account.  It helps cover cost associated with processing your application.


Setup Fee

This type of fee is charged when setting up your new payment services.  It helps cover cost associated with the setup process.


Termination Fee

This fee is charged only if you cancel your account before your contract terms are satisfied.  This fee helps recoupe the cost of setting up your account and any cost when closing it.  These processes involve several departments - underwriting, customer service, and financial are among the most common.


Discover Activation Fee

This is a setup fee charged directly by Discover.  This will cost you $50 if applying directly with Discover.  If you get setup with your payment provider it will only cost you $25.


Chargeback & Retrieval Fee

Chargeback fees occur when a sale is disputed by your customer with their financial institution.  Retrieval fees occur when your customer's financial institution request a sales draft or invoice to verify the charge.  These fees can be eliminated if the issue is handled directly between you and your customer "before" they turn to their financial institution for help.


Internet Gateway Fees

These fees are charged when you use an Internet Gateway Service.  There is usually an up-front licensing fee, a transaction fee, and a monthly service fee for accessing the gateway service and providing customer service & technical support.


Wireless Gateway Fees

These fees are charged when you use a Wireless Terminal.  There is usually an up-front setup fee, a transaction fee, and a monthly service fee for accessing the gateway service and providing customer service & technical support.