Most business owners utilize merchant services out of necessity. This necessity stems from modern consumers’ demand to pay electronically, use credit cards, and generally enjoy fast and easy payment methods. So when it comes time to choose the right merchant services provider, it is understandable that some small business owners simply go with the first reasonable company they can find.
Unfortunately, some merchant services companies are not always forthright with fees, services provided, and other key aspects of their payment processing agreements. For this and many other reasons, that is why working with a merchant services company who is transparent throughout is such an important choice.
Understanding the Basics of Payment Processing Fees
Transparency begins with easy to understand fees. The pricing structure of your merchant services agreement may vary dramatically depending on your agreement. Before entering into an agreement (or to better understand your current agreement) it is important to first have a sense of the types of pricing models.
Interchange-plus pricing are the most complex, but the most transparent of all payment processing pricing solutions. This is because each individual fee is marked separately. This is a jack-of-all-trades pricing model which is recommended for most business types.
Membership pricing, sometimes also called subscription pricing, is similar to interchange-plus in that all interchange fees are billed and listed separately. This allows for a high level of transparency when it comes to fees and rates while also keeping merchant account fees simple.
Blended pricing combines interchange and merchant account fees into one rate. This allows for an easy-to-read statement, but with a cost of lower transparency. If transparency is a high priority, blended (flat-rate) processing might not be the best option.
Tiered pricing is similar to blended pricing with the addition of tiers for transactions. Again, this takes away a certain level of transparency from the pricing/billing process.
Merchant Services Hidden Fees and Charges
There are three basic types of fees for merchant accounts:
Transactional Fees: interchange fees and merchant account fees per transaction are considered transactional fees. These rates are generally either calculated as a percentage of the sale amount or as a flat-rate per transaction. In many cases, there may be both a percentage and a flat-rate applied. Hidden fees may appear here as slightly higher rates for less transparent billing methods.
Scheduled Fees: these might include annual fees, monthly fees, minimum fees, statement fees, and other repeating fees. It is not likely that a hidden fee will fall into this category.
Incidental Fees: one-off, non-scheduled fees are generally considered incidental fees. Examples of incidental fees include overdraft charges, chargeback fees, and so forth. Ideally, incidental fees will be kept to a minimum. Incidental fees should be closely monitored as small, hidden fees can sometimes be tacked onto a statement.
Choosing a Payment Processing Solution with Transparent Billing
There are a litany of factors to consider when selecting the best pricing options for your merchant account. There are the obvious factors like price, convenience, and quality of service. Yet transparency has a way of impacting those other factors in less overt ways.
For example: let’s explore a hypothetical example of an interchange-plus account vs. a blended pricing account. In this example, let’s just say that each transaction comes with a fee of ~2%. Both business owners are comfortable with this rate, and there are no issues.
The next month, the average rate jumps to about 2.5% per transaction. The business owner with interchange-plus billing is able to view his or her name statement and identify that the rising rates is due to a less than reputable merchant service provider upping their fees. The business owner with a blended pricing account has no such luck. They are left in the dark and must try to unravel the mystery of the higher rate without detailed information.
Billing transparency is more than just a convenience, it is a way for small business owners and operators to protect themselves and keep the merchant account relationship fully above board.
Merchant Service Billing FAQs
Merchant Service Billing FAQs
Does greater transparency equal lower rates for merchant accounts?
Not necessarily, although greater transparency allows for fewer sneaky business tactics by merchant service providers, credit card brands, and more.
Is there a one-size-fits-all solution for merchant services?
Certainly not. Each business is unique and each merchant account agreement should reflect that. If you have questions about what type of account might be best for your business, speaking to an industry professional is always a great first step.
How much is a reasonable cost for merchant services?
It is impossible to answer this question simply, but a quality merchant services provider will provide detailed information on exactly how and when you will be charged. A typical agreement might include a startup fee, flat transactional fee, percentage transactional fee, PCI fee, and so forth.
True Merchant Offers Small Business Solutions with Fair and Transparent Pricing
There might not be one singular answer to every merchant account question, but at True Merchant we strive to provide top level merchant services to businesses of all sizes and needs. We believe in full transparency throughout the sales process.
To learn more about how we can help your small business grow, please call or email a member of our qualified merchant services team today!