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When individuals start their own business for the first time, one of the most challenging tasks that they are usually confronted with is establishing their merchant account and payment processor.  One of the most confusing aspects of merchant payment processing is the cost and merchant account fees structure where the acceptance of credit and debit cards is concerned.  In order to decipher how these costs are calculated, you need to understand how the two basic fee structures function.

Two Types Of Pricing Structures To Choose From

Checking numbers on a graph with calculatorInterchange plus and tiered pricing are the two primary fee structures offered to merchant accounts.  You will find that both pricing structures are comprised of several different fees as well as some that are very similar.  However, the way in which these fees are calculated differs with each structure.  The primary reason that the pricing structure of a merchant account is so confusing is because of the fact that the mechanics are so complicated and difficult to understand.

First and foremost, it’s important to understand what is meant by the term “transaction.”  In this case, it is not the swiping of a credit card.  It refers to the interaction between the banks that do the processing and the merchants that use them.  Unfortunately, if a transaction is denied, you will still have to pay a fee.  You may also incur transaction fees when you clear your batch at the end of each business day.  Basically, there is a variety of transactions and a number of fees associated with them.

Interchange Plus Pricing

In the past, only those merchant accounts that generated a high amount of credit card sales ($25,000 or more) could qualify for Interchange Plus pricing.  This is no longer the case thanks to how competitive the marketplace has gotten where establishing new merchant accounts is concerned.  There are only two rates that are considered by the credit card processor. In addition to the transaction fee there is an interchange markup percentage fee.  Regardless of the processing rate, the merchant pays a flat fee and a small per-transaction fee.

Tiered Pricing

A tiered merchant account operates on a qualification system in order to determine which tier rate the transaction qualifies for.  These may be referred to as “bins”, “buckets”, or “rate buckets.”  A simple example of this would be a 1% Qualified rate, a 2% Mid-qualified rate, and a 3% Non-qualified rate.  Just keep in mind that it might not be that simple as some companies impose in-between tier percentages.

Posted in Merchant Account on Feb 21, 2014