Fees: Add-on, Extra and Ancillary Costs
When evaluating payment processors, merchants should always be on the look-out for extra or ancillary fees. Because there are many prospective players in the credit card system, the number of potential fees charged by processors is virtually limitless. In a typical situation, a merchant will be dealing with four card brands, a payment processor, card issuing banks, and perhaps a payment gateway. In addition to the fundamental discount (or interchange and assessments with pass-through arrangements), merchants may encounter some of the following charges:
- Authorization or Internet Gateway Fees
- Settlement Fees
- Interchange Withheld on Refunds
- Chargeback Fees
- Address Verification Fees
- Reporting Fees
- Conveyance Fees (American Express and Discover)
- Monthly Minimum or Monthly Service Fees
- Cross Border Fees
- Credit Card Terminal Fees (Rental/Lease)
- Foreign Exchange Mark-ups
In principal, most of the players are entitled to certain fees because they do incur costs related to these functional areas, and should expect to make a profit. It’s the merchant’s responsibility, however, to determine that these functions are in fact required, and that the fees are competitive. Merchants should be sure to include these ancillary fees when accounting for their total processing costs.
The best way to compare offers is to examine the total percentage fee, which is the sum of all your transaction fees divided by your average sale value. Ancillary fees like monthly minimums and chargeback fees should be added up and then divided by the total transaction count to determine the cost contribution per transaction. Once you have calculated the total percentage fee for all your perspective providers, a simple comparison will determine the true price winner.