To start a new business, companies need to be able to accept payments. In previous eras, that meant keeping a cash box or relying on customers to pay by check. Today the vast majority of transactions are completed using a credit card. In order for businesses to handle credit transactions, they need to have a merchant account, either directly from a bank or through a servicing agent.
These accounts are a cost of doing business and come with a variety of pricing structures and fees. Businesses generally take these fees into account when setting the price points for their products and services.
A merchant account is usually going to have a variety of fees. These will include periodic fees to access the system as well as special fees for customer service, early termination, chargebacks, and other services. Interchange fees will comprise the majority of the costs of a merchant account. These are calculated based on the number of charges made. The fee may be per-item or a percentage, but it is usually determined by the issuer of the credit card, i.e., Mastercard or Visa. While there are discount rates available, most merchant accounts operate on either a 3-Tier or a 6-Tier pricing model. Transactions in each tier are assigned a rate based on established criteria for that tier.
When choosing a merchant account, businesses should look carefully at the interchange fees , annual fees, and billing system used by each provider before making a final decision as to which to use.