CREDIT CARD PROCESSING PART 2 - THE MONEY

The Reseller

Resellers make their money from software you probably don’t need, monthly software “maintenance” fees, card processing supplies, card processing machines, and probably commissions from the gateway and processing companies they represent.

Most resellers charge a “setup” fee. I don’t know if this is a reseller charge, a gateway charge or a processor charge. I think it all depends on the underlying agreements between the reseller, gateway and processor.

Some resellers can also help you install a shopping cart. We build and maintain our own websites. We had no shopping cart experience, and one of the benefits of going with our first reseller, Merchant Express, was that they provided a shopping cart and installed it for us for a nominal fee. When we switched processors, we were able to do the necessary recoding of the shopping cart ourselves in a few minutes.

The Gateway

That “monthly fee” that is quoted when shopping for credit card services is the gateway company’s fee. They do not make their money any other way. As I mentioned previously, it may be possible to negotiate directly with gateway for a lower rate. This fee is usually $15 to $20 per month.

If you work directly with AuthorizeNet, they charge a setup fee. Because we had an existing account (we had to close that one due once again to Pipeline Data Processing’s terms), we could open a new one at a steep discount.

The Processor

The processor sets your per-transaction fee. This fee is usually a set amount per transaction (e.g., 10 cents per transaction) plus a “discount rate”. The discount rate includes the fee the credit card companies charge and a bit on top of that for the processor. The discount rate varies according to the number of transactions processed per month. From what I can gather, it appears that the transaction fees vary not because of the amount the credit card companies charge, but because of the amount the processor charges on top of that.

Many processors have a monthly minimum. So, if you have a very low volume of transactions, you will most likely pay the monthly minimum instead of an amount per transaction. You need to do some math to determine whether you will get hosed by the monthly minimum requirement versus having enough transactions to get the regular per-transaction free and discount rate. If you only take credit cards online, not in person, the way out of the minimum monthly trap is to use a service such as PayPal that does not require you to open a merchant account with a processor. I will talk more about the PayPal model in part 3.

Credit card companies and processors also charge different fees for different types of credit cards. I have never delved into this matter and I don’t intend to any time soon. Apparently, for a very high-risk, unsecured card, the fee per transaction can be around $10. I have asked around, and I have found no vendors who had incurred such a fee, so it’s probably pretty rare.

Another fee the processor charges is the “statement fee.” I don’t know why you are charged to receive your statement every month. We no longer pay a statement fee with our new processor, Nova. Our old statement fee through Pipeline Data Processing worked out to $19.99 per month, which is astronomically high. I don’t recommend Pipeline Data Processing for a number of reasons, mostly having to do with money. Statement fees tend to run from $8 to $12 per month.

Still another fee the processor charges is the dreaded early termination fee, same as your cell phone provider. Before you sign up for services, it is important to know what the contract term is and what the early termination fee is. We were recently hosed by Pipeline Data Processing (3 years and $300), but most are not this drastic. Our current agreement is 2 years and a $95 early termination fee.