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[C1236]Credit Card Transaction Fees

by Illusion2 Technology, Ill

A: Each credit card processing company operates somewhat differently, but there are a number of fees that are common to all of them. Here are some examples of various fees associated with a typical merchant account.

The application or setup fee is a one-time charge for processing a merchant application and activating your new merchant account. Some processors waive this fee to promote their businesses and attract new merchant accounts.

The address verification service fee (AVS) is a fraud prevention measure that provides merchants with an additional fraud-detection tool to determine the validity of a sale, which is especially useful when the card is not present. AVS matches a sale's shipping information with the cardholder's billing address. When addresses do not match, merchants should discuss the discrepancies with their customers before shipping orders. AVS only works with cards that are issued in the United States. When AVS is used, there is a per-transaction fee for the service.

The discount rate is the percentage charged on the dollar amount of a sale or a returned transaction. Discount rates vary depending on the type of business, such as a traditional brick-and-mortar business, a mail-order/telephone-order business, a restaurant or an e-business. Discount rates also vary depending on whether a card number is keyed into the point-of-sale terminal or swiped into the terminal. Swiped rates are generally lower because of the data encoded on the card's magnetic stripe, which eliminates key-entry errors.

The secure payment gateway fee is a charge assessed to e-commerce merchants to enable them to process transactions securely over the Internet. This is usually a monthly fee.

The customer support fee is a monthly charge assessed by some processors, which enables them to provide high-quality customer service 24 hours a day, 365 days a year, often in multiple languages and dialects.

The monthly minimum fee is charged to the merchant if the total monthly discount rate amount for MasterCard and Visa transactions does not reach a minimum threshold. If the merchant reaches the minimum threshold, no monthly minimum is charged. Virtually all credit card processors initiate this fee, and generally it ranges from $10 to $30 per month.

The reprogramming fee is a one-time charge a processor may assess for converting a merchant from one credit card processor to a new credit card processor.

The transaction fee is assessed for each transaction authorization submitted by a merchant, such as a sale or a return. This fee is also charged on transactions where the card is declined. In addition, transaction fees are incurred for American Express and Discover card transactions.

Equipment and software fees vary depending on the type of business—traditional brick-and-mortar, mail order/telephone order, restaurant or e-business. Merchants will need certain kinds of equipment and software in order to process credit cards, debit cards and checks. Equipment can include point-of-sale terminals—both countertop and wireless—printers and PIN pads as well as secure payment gateways, virtual products, software and payment options for Internet businesses. Most equipment and software can be either purchased or leased, and prices vary depending on the processor.

Chargeback and retrieval fees: Chargeback fees for a disputed transaction are based on the number of chargebacks posted to an individual account ($10 to $25 per final posting). Incoming retrievals are requests for the original transaction receipt that the cardholder's bank requests and are charged whether or not there is a final posting. The industry standard is $15 per incoming retrieval.

Keep in mind, there are numerous considerations to maintaining an effective merchant account, and fees are just one component. When you open a merchant account, ask your credit card processor, agent or sales representative to explain all your prospective rates. Be sure to ask if the transaction processing company has revealed all charges that could apply to your account; you want to avoid any hidden charges. Look for a credit card processor with a reputation for being honest and upfront, whose merchants are fully informed of what is reflected on their monthly statements.

Sometimes merchants shop for discount rates, but rates are only part of the processing picture. Look for a credit card processor that consistently provides top-quality customer service, 24-hour availability and a one-stop shopping experience (i.e., point-of-sale equipment, processing software, training, 24/7 customer service in more than one language and state-of-the-art fraud prevention procedures).

Credit card processing does not have to be intimidating or challenging. Find a processor dedicated to personal interaction with its merchants. Work with agents and sales representatives who communicate directly and honestly with their merchants, explaining each charge and what it covers. Ask questions. Remember, you are the customer. Accepting credit cards can help grow your business.

Profiting from house price appreciation requires getting more money from the sale of a property than was originally paid for it and not having that profit cancelled out by moving costs, transaction fees, and a large spreads between the cost of ownership and the cost of rental during the ownership period. Buying and selling residential real estate incurs significant transaction costs that are not reflected in the price. It is quite common for properties to sell for more than their purchase price and still be a loss for the seller. However, even if the seller loses money, the realtor gets a commission. Six percent of an owner's house price appreciation goes to paying the realtor.

The portion of investment value caused by appreciation can only be evaluated by an accurate estimate of appreciation during the ownership period. The general public grossly overestimates the rate of home price appreciation. Historically, houses have appreciated at a rate 0.7% over the long-term level of inflation. From 1983 to 1998, a period of low inflation and declining mortgage interest rates before the Great Housing Bubble, the rate of house price appreciation was 4.5% nationally which was 1.4% over the rate of inflation. Appreciation rates are tied to income and rents because this is the fundamental value of residential real estate.

When people purchase residential real estate they pay numerous closing costs including title insurance, recording fees, document stamps and taxes, mortgage application fees, survey fees, inspection fees, appraisal fees, et cetera. These fees often total between 2% and 4% of the purchase price not including any prepaid interest points on the mortgage.

When people go to sell residential real estate they generally go to real estate broker who will charge them a 6% commission. There has been an increasing popularity in the use of discount brokers, but the National Association of Realtors has done a remarkable job of keeping brokerage commissions at 6% despite market pressures to lower them. These transaction costs are part of every residential real estate transaction, and they take a substantial portion of the profit on properties with short holding periods, and if the holding period is not long enough, transaction fees create losses.

Due to the high transaction costs, a property does not reach breakeven until two full years of ownership. In a discounted cashflow basis, a property does not break even until after 4 full years of ownership. It is these high transaction costs that compel many with short-term housing needs to rent rather than own.

Realtors like property flippers and people who move frequently because it provides them opportunities to extract 6% out of a large transaction. The higher the sales volumes, the more money they make. If not for home price appreciation, there would probably be a national revolt against these high commission rates, but since houses generally appreciate enough during a typical ownership period to cover the commissions, the populace simply accepts these outrageous fees as normal and acceptable. Perhaps the Great Housing Bubble will change that.

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Illusion2 Technology has sinced written about articles on various topics from Finances, Credit Cards and Internet Fraud. . Illusion2 Technology's top article generates over 2400 views. to your Favourites.

Alex Gwen Thomson has sinced written about articles on various topics from Home Management, Income Tax Return and Wrinkles. is the author of The Great Housing Bubble: Why Did House Prices Fall?Learn more and get FREE eBooks at:. Alex Gwen Thomson's top article generates over 673000 views. to your Favourites.