Thursday, April 19, 2007

Ecommerce Credit Card Processing: The Fees

For the uninitiated - and even for merchants who have owned an internet business for years - the wide array of credit card processing fees that can be incurred in the operation of an ecommerce store can be a bit bewildering.

In this article, we'll discuss most of the costs involved in maintaining an internet merchant account. Note that these fees are in addition to what you may have to pay as an upfront fee for the software required in order to set up your ecommerce facility (these fees can range from $50 to $200 usually, although nowadays some providers waive this fee altogether). You may also have to pay for a shopping cart, although this service too is now sometimes packaged as a freebie when you set up the ecommerce facility.

Here are the fees that merchants can anticipate having to pay on an ongoing basis in order to process credit cards via their website:

The most significant monthly fee you'll be charged is what is known as the Discount Rate - a percentage of the dollar amount of every sale you process through your website. Limiting ourselves here to internet merchant accounts for US-based businesses in non-high risk industries, you can presently expect to pay between 2.19% and 2.40%.

In fact, discount rates call fall into 3 distinct categories: The lowest of these rates - the range quoted above - and the most commonly applied, is the Qualified Discount Rate which in the context of ecommerce retailing is where your customer "keys" in the card information in his computer's browser, and the information he provides concerning his billing address matches that in the bank's records ("AVS match"). Some companies charge up to 10 cents per transaction for the AVS service.

Tip! You will first need to find a reputable bank or credit union that will agree to extend a merchant account to you for this purpose. To get approved, you will need a solid credit history, a reasonable business plan, and documentation to show that you are able to manage the costs associated with credit card processing rates.

On occasion however you may be charged a surcharge on top of that. The Mid-Qualified Discount Rate will be added to your normal discount rate where there is no AVS match (usually an additional .75% to 1.25%). And a further additional surcharge (the Non-Qualified Rate) of from 1.5% to 2% may be levied where your customer makes his purchase using a foreign-issued card or where the card was issued to a company or the government.

Most providers will charge you a Monthly Minimum - this is the least amount you'll have to pay for the discount rate charges in a month. This is often $15 to $25 - so you'll always pay at least that much, even if you don't process at all during the month. You'll also most likely have to pay a monthly Statement Fee, often around $8 to $15.

A Transaction Fee is almost always charged - here you pay a set amount for each transaction you process on your website, regardless of the dollar amount. Usually this is in the 17 to 30 cent range.

The other standard monthly charge - and this applies only to ecommerce processing - is the Gateway Fee, generally in the $15 to $30/month range. This fee is to cover the costs of connecting your website software and shopping cart to the transaction processing system.

Tip! As far as your credit card processing application is concerned, everything. How you run your personal life is indicative of how you will run your business, helping the underwriters of your credit card processing application to determine whether or not you should be considered a risk.

We don't have the space here to go into all the other fees you may come across in operating your ecommerce business, but we'll briefly mention three of them here:

• a Chargeback (often $20 to $40) whenever a customer has a dispute about what you charged him, or whether you delivered the goods or services promised.

• a Programming Fee, if you are switching from one provider to a different one.

• a Cancellation Fee, where you sign a long term agreement and want out early.

So as you can see, there are a lot of different costs you can be hit with when running your ecommerce business. So before you sign with any particular company, have them give you, in writing, a complete list of all the possible fees they might levy against you. It pays to shop around.

Colin Albert operates The Merchant Account Explorer website, which offers advice and recommendations for merchants looking for ecommerce credit card processing solutions. The service enables business owners to comparison shop for the most suitable internet merchant account for their particular needs.

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