Credit Processing

There are, of course, various fees that come with a Merchant Account – processing the credit of other people does not come free! Some are set by the merchant account provider (the “provider”) themselves, while others will be set by the credit card company (e.g. MasterCard or Visa) and then pass through the provider and onto the vendor. Additionally, the fees will also vary on a number of different basis including frequency (periodic versus one-off), basis of calculation (i.e. percentage based, flat rate or per item) and also the method of the transaction (i.e. if the credit purchase is being processed manually or electronically).

Any fees that are passed through will be according to a master schedule of rates that comes from the credit card company – such fees are called interchange fees. Some providers have also started to charge such fees on an “interchange plus” pricing basis. The fees for such credit processing services are based on the standard schedules as above, however the discount rate (discussed below) is based on the sum of the interchange rates combined with several other fees and costs.

The Discount Rate

As a vendor hoping to get a merchant account the discount rate is a very important number to know, as it basically includes all of the fees, charges, assessments and otherwise that you will be required to pay (yes, there are quite a lot of them) in order to have your merchant account and the ability to process credit card payments made by your customers.

The largest component of any discount rate will usually be the interchange fees (as discussed above), and there will also be various other costs and mark ups applied by the sponsoring bank and anyone else involved who would like to “clip their ticket” (i.e. pass their costs on to you with a slight margin).
All of the company’s involved create their profit my adding margins on to the fees that are charged.

Bill Backs

Bill backs are a new and also somewhat controversial form of credit processing pricing. The bill back rates are still based on the standard interchange fees, however the method in which they are billed is different (and also quite confusing). Basically, the interchange fee is paid by the merchant as per normal, however then all the related fees to do with the particular transaction are then paid on a subsequent statement.