Online Merchant Account Terminology

Getting a merchant account + gateway can be confusing due to the way the merchant account industry splits the different fees. The following explanation of each service / fee should help you in your comparisons...

Services:

Merchant Account - A merchant account is an account setup through a financial institution that allows a merchant to accept credit cards for payment directly on his or her site. In addition, a merchant account allows a merchant to collect funds and to then have those funds placed directly into their checking account.

Gateway - Computer that allows communications between networks. Used in ecommerce to act as an interface between a merchant and a bank; i.e, a Payment Gateway.

Setup Fees:

Application Fee - Cost to review your application and determine if you qualify for a merchant account.

Setup Fee - This is a one time fee used to set up your account.

Monthly Fees:

Monthly Statement Fee - This is the fee you pay a bank or other institution to generate and mail you a statement of your account's activities.

Monthly Minimum - There is a generally a $25.00 Monthly Processing Minimum on every merchant account. If the combined total of your normal monthly fees do not exceed your monthly minimum fee, you will be charged this fee. This is the minimum amount you must pay each month for your Visa/MasterCard processing. The monthly minimum does not apply to monthly fees or transaction fees. For example: If your rate is 2.29% and you sell $1200 in goods or services during one month, your total Visa/MasterCard credit card processing fees would be $27.48 ($1200 x 2.29% = $27.48). This amount is greater than the $25.00 monthly processing minimum, so you do not have a minimum during this month.

Gross Daily Settlement - when 100% of your Visa/Mastercard sales are deposited directly into your checking account each business day, making reconciliation of your checking account much easier. Only at the end of each month are your processing and monthly fees debited. NOTE: Some high risk merchants may receive NET DAILY SETTLEMENT (where processing fees are debited before deposit).

Per Transaction Fees:

Discount Rate - The percentage charged for each credit card transaction that takes place.

Authorization Fee - This fee is charged per every transaction you conduct.

Transaction Fee - This fee is charged per every transaction you conduct.

Address Verification (AVS) Fee - This fee is charged so that your institution can verify your billing address.

Visa/MC Interchange - is the fee associated with exchange of transaction data between Acquiring and Issuing institutions in accordance with the Visa and MasterCard bylaws and rules. Interchange is the processing fee charged by Visa and MasterCard to charge the cardholders and pay the merchants. The interchange fee is actually paid to the bank that issued the card while the merchant's bank is charged the interchange fee. Merchant transactions are gathered for processing every night, these transactions are routed to the cardholders to be charged, and merchants are credited accordingly.

Contract Terms:

Contract Term - This is the length of the contract you signed with your merchant account or financial institution companies.