What are merchant fees? (with photo)

The credit card is being swiped through a terminal.

Merchant fees are fees associated with processing credit cards. These fees vary depending on the type of business, the bank you have a merchant account with, and the credit cards accepted. Often, the consumer is unaware that, when making a purchase with a credit card, the establishment does not receive the full amount, due to the deduction of the establishment’s fees. This is one of the reasons companies that accept credit cards are sometimes forced to raise prices, as a small percentage on each purchase can represent a large expense over time.

A number of different rates fall under the umbrella of commercial rates. When someone opens a merchant account, they usually have to pay an application fee. Additionally, the merchant will need to pay an annual fee to maintain the account. Each time a credit card is run, the merchant pays what is known as an interchange fee, the fee for the merchant’s bank to communicate with the credit card issuer to authorize the transaction and receive the money. Additionally, the merchant’s bank charges a processing fee for each credit card transaction.

Transaction fees can be based on a percentage of the transaction or can be flat fees. Some commercial banks combine these two methods, charging a base flat fee per transaction and adding a percentage fee. This ensures that they make a minimum amount for each transaction. Merchants are also charged “batch fees” associated with grouping their transaction information and batching them for bank processing. Until transactions are grouped together, they are not actually processed and transactions are considered pending, which is why it sometimes takes a few days for credit card charges to appear in customer accounts.

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Different credit cards have different merchant fees depending on the deals you transact with the banks that manage merchant accounts. This is why merchants usually don’t accept all credit cards, because your bank doesn’t have an agreement with the card issuer, or they do, but the merchant fees are too high for the merchant to pay. Fees can also vary depending on whether people are using regular or reward cards. Debit cards, which are handled differently, tend to be less expensive to process.

Merchants’ fees are constantly rising and periodically there are protests among merchant groups who argue that the prices for credit card processing are unsustainable. For the public, the repercussions of these protests can be felt when companies stop accepting credit cards, institute a credit card minimum (even though this often violates the merchant’s agreement), start charging more for their products, or start offer a “discount” to people who pay cash as a way to get around restrictions that prevent companies from charging more for credit card transactions.

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