Report: Understanding Your Merchant Account


In this day and age of rising energy and food costs, along with the assurance of whom ever is governing over us; the costs to operate your business will continue to increase. The words ‘SOUND BYTES’ are just that, ‘small bits of information available to the merchant whose business has its customers present during a transaction or traditional merchant processing.

This brief report contains knowledge and approaches to merchant processing that are not normally promoted by banks, processors or independent sales organizations that work for banks or processors. Please understand, this report can not possibly cover all the criteria or circumstances that a business faces to operate efficiently, however, it is hoped that more knowledge on a subject will lead to better decisions that help improve the business owner’s bottom line.

The following information is on the typical headline topics in this industry that so many merchants fall prey to time and time again.

Type of Business

When a business owner decides to add merchant processing as a way of accepting payment for its goods and services a few choices need to be implemented. From a level of risk and for the purposes of this report, the discussion shall primarily center on those businesses that have a customer present when a transaction is made. From the processing world, this type of transaction is the best. The customer is typically standing at the sales register, the card is swiped and identification is provided to the cashier, the customer signs the receipt, the customer leaves with the goods or services and both parties have a receipt of the same. Basically, any business that delivers its goods and services at the time of the sale (with nominal returns) is the center purpose of this report.

Equipment and Applications

The choices in terminals are very nominal. There are about a half a dozen machines that do basically the same functions with the same level of service. It is how a business acquires their machine(s) that is the question. Terminals retail for anywhere from $400.00 to $1850.00 (for a wireless). The same units wholesale for about $100.00 to $400.00. If the business owner must own the terminal, then we recommend purchasing on EBAY, where the typical terminal can be acquired for about $100.00 shipped.

For those that want an even better arrangement, we recommend FREE. The typical version of ‘FREE’ is; ‘the machine is free to use for as long as the merchant processes through the provider that provided the free terminal. In the event that the merchant decides to end the relationship, then the terminal must be returned to avoid being charged a fee.

To Lease or Not to Lease

Occasionally, merchants have a terminal that they have leased. This is always an aggravating experience because the merchant becomes aware of the fact that $30.00 to $50.00 per month for two to four years is not a good situation for a machine that costs typically $100.00 to $400.00. These contracts are binding. In all cases the business owner should seek to assess exactly how much longer the payments are scheduled, when notice of termination can be sent and determine the amount of the final payment. Unfortunately, this final payment is usually the cost of a typical terminal.

It should be noted that the leasing company for the terminal (equipment) and the provider of the merchant processing services are typically not the same company. Therefore, the business owner can seek a reduction in processing costs while enduring the remaining payments for the equipment lease.

POS Systems

POS (Point of Sale) Systems abound from restaurant, to retail, to lodging. Little can be said about the various vendors except each one has its own strengths and weaknesses. The business owner should carefully analyze the on-going costs, the compliance issues and whether the vendor warrants its own compliance in the merchant processing world. It should be stated that on occasion, things break, and yes the POS Systems will break. The business owner can save time and realize that the problem is typically not the with merchant processing. The business owner must then insist that the POS vendor come out or repair the system.


In the industry, we have all heard the stories of the merchants who say, ‘the last three guys that came here to discuss merchant processing, all said they would save us money and now we pay more!’ If the business owner expects to save money and is not told what certain things cost; then how will the owner know the new agreement is going to save any money? The answer is he or she can’t! There are approximately 267 internal discount rates, assessments and fees to merchant processing in a ‘thing’ called Interchange.

These rates boil down to four basic categories and are listed below. The internal costs do vary from industry to industry. Some of the industries are grocery, fast food, restaurant and retail. For the purposes of this report, the rates will focus on traditional retail.

>> Debit

Unfortunately, FTK still sees merchants with a competitor’s statement that shows that no reductions for debit charges were provided. Debits were processed at the same rate as qualified transactions. Most providers now give a reduction in the discount rate for debit. A good discount rate for debit is around 0.59 to 1.09 percent. For those merchants that use a Pin Pad for their debit transactions, the rate should optimally be 10 to 20 cents per transaction plus the network fees.

There are ten networks, such as Star, Pulse, Maestro, etc. The rates range from approximately 37 to 69 cents per transaction. This form of processing gives the reduction in costs to the benefit of the merchant, not the processor. ‘All-In’ pricing is used frequently for rates around 65 to 90 plus cents per transaction. This form of processing gives the benefits to the provider as the use of less costly networks make the provider more profit.

It should be noted that for merchants that operate with a Pin Pad, a price point exists where the business owner should use the Pin Pad vs. running the debit transaction as a credit. In an effort to mitigate costs, the business owner should run an anlysis for the breaking price point in running transactions as debit or credit.

>> Qualified

Qualified transactions or ‘card present’ transactions are certainly the most frequent. A good rate for this category is 1.58 percent. Some providers market their rates as below cost on qualified transactions in a range of 1.30 to 1.50 percent. When this situation is offered, the business owner is running all debits at the qualified credit rate.

>> Mid-Qualified

Mid-qualified transactions are classified typically as ‘keyed’ or “MOTO’ (Mail Order Telephone Order) transactions. These are the transactions that are over the telephone or that came in the mail. Most providers set rates for ‘Mid-Quals’ at around a low of .8 to 1.2 percent above whatever the qualified rate is. This usually means a rate of 2.7 to 2.9 percent. A more competitive rate for this category is what is called a partial pass-through set at approximately 10 to 30 basis points above cost. This structure translates into 1 to 3 tenths of a percent above costs. Many processors are unable to provide this type of flexible solution.

>> Non-Qualified

Non-qualified transactions are classified typically as the Corporate Cards, the ‘Point Card’ or the ‘Air Mileage Card.’ Everyone has seen the commercials where someone is using their card to earn miles to go to Hawaii. These cards are expensive to the business owner because someone has to pay for ‘those airline tickets’. A typical rate is 1.5 to 1.8 percent above the qualified rate or roughly 3.3 to 3.7 percent per transaction. A more competitive rate for this category is what is called a partial pass-through set at approximately 10 to 30 basis points above cost. This structure translates into 1 to 3 tenth of a percent above costs. Many processors are unable to provide this type of flexible solution.


Monthly fees or Monthly Statement Fees range from a rare zero cost to a usual $5.00 to $10.00 and can go as high as $19.95. On line services range from free to $10.00 per month. Monthly Minimum Fees are usually $25.00 per month and disappear when the business owner processes about $1,200.00 to $1,500.00 per month. Transaction Fees or Transmittal Fees range from a low of 5 cents per transaction for certain industries to an average of 20 to 25 cents per transaction. In this competitive world we live in, a fee of 10 cents per transaction is good for retail. Remember, the long distance companies built their billions of dollars one nickel at a time.

Mysterious Fees

Many processors have what we call ‘I Love You Fees.’ Fees showing in the monthly statements, which are allegedly for membership or marketing organizations that the business did not know it joined. In the processing of the business’ transaction they serve no purpose other than to affirm the ‘love’ the business has for its processor or bank. These can be from an extra $3.00 to $10.00 per month or the $99.00 annual fees. And in the long run, they do detract from the bottom line.


Contract terms are usually three (3) years with an annual automatic renewals of one (1) year each. There are some providers that offer month to month contracts with no early termination fees, but they are usually much more expensive in other areas.

Early Termination Fees

Early termination fees are usually $200.00 to $300.00 on a three (3) year contract. If the business is being sold and the new owner will be using the same services; most processors will work with the merchant in the mitigation of this fee. Some merchant providers charge large early termination fees based on some mysterious calculation or what they believe they would have made over the remaining term of the contract. This action can amount to thousands of dollars and at the very least is a form of usury. The merchant is essentially being held hostage for the term and is probably paying high rates and fees.


Hopefully, a sufficient amount of the mystery has been eliminated on the topic of merchant processing to allow the business owner to proceed with a new confidence that will prove to be a positive event in the management of the business. It should be noted that the information and views in this report are not necessarily those of a particular bank or processor or independent sales organization, but are simply offered to shed some different light on a very confusing system.

We are waiting to help you, the business owner, in mitigating the costs of merchant processing. We are not attorneys or accountants. We offer you, the business owner, a FREE consultation with possible better solutions and help you finally learn what you are currently paying for merchant processing.


You, the business owner, owe it to yourself to control those costs.

For the existing merchant, it starts with a simple fax (1.208.693.8894) of the most recent processing statement. For the new merchant, it starts with a simple call and about twenty minutes on the telephone to get a new application and contract sent to the new business.

Call Us Now To Quickly Start The Process!

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