Cheat sheet for ecommerce transaction costs

I often find myself creating cheat sheets – quick reference information that I can put aside for the next time I need it.  Recently I was digging into ecommerce transaction fees and the various charges that you can run into when processing transactions online.  Sometimes the fees are not very clear and often times they are avoidable, but you have to know what they are to make any headway.

Since it took a little digging to pull the list together, I thought it might save some folks a few minutes as well.  So here you go.  Standard disclaimer – your mileage may vary and you should expect a lot of variety in the rates.  Here are the most common online transaction fees and what they mean:

• Discount rate or variable transaction fee – This is the most commonly discussed fee associated with credit transactions, and it is the percentage that is taken out of every transaction for processing. The rate changes on how credit card is used.  If you have an existing merchant account for a physical store, you probably already know that the rate goes up if you do not have the physical card in hand.  Because ecommerce transactions are usually considered “card not present” transactions, they typically always catch the higher rates.  Discount rates range between 2.0-3.0%.

• Surcharge fee – Somebody’s got to pay for all those miles.  This is an extra fee for corporate or reward cards, and can range from 0.5-2.5% on top of the regular discount rate.  “Wait,” you say, “I don’t want to pay for someone else’s cash back or miles!”  Unfortunately, that’s part of the bargain.  The processors will tell you that buyers with those cards often spend more, so it should be worth paying a premium.

• Fixed transaction fee – This is a fixed amount that you are charged for processing a transaction.  It will often be assessed even if card is declined or the charge is later refunded.  The fixed fee can range from $0.25-$0.70 and occasionally more.

• Address verification fee – You can also be hit with $0.05-0.25 when an address is manually entered, to confirm that it is a real address and that the name matches the credit card.  In ecommerce transactions, the address is almost always manually entered, so expect to pay this as well.

• Voice authorization fee – Decided that you’d rather call in the credit card information rather than handle it electronically?  It will cost you around $1.00 to get a verbal authorization.

Think we are done?  No my friend, there is much more.  Your business account, unlike your free personal checking account, has a number of fees that show up with amazing regularity.  Here are some of the most common:

• Monthly service fee – The cost of keeping your account open.  The fee varies widely from $0-$10 per month.  Next time you go to your bank and see the beautiful plants in the lobby, just remember that some portion of your monthly fee goes to pay for the fertilizer.

• Statement fee – Want to know how you actually used your account? That may cost you $10-15 per month.  You can often avoid paying this fee by signing up for electronic statements.

• Internet gateway fee – Up to $30 per month to connect your account electronically to the rest of the world.  It has been years since I saw an old passbook savings account, but I guess that is the alternative if you are so inclined.

• Monthly minimum fee – The bank equivalent of a 2 drink minimum.  If you don’t use your account enough, you may still incur a minimum usage fees to bring you up to set amount, often around $25.

• Chargeback fee – This $20-$30 fee is for handling disputes.  If a customer disputes a payment and contacts their credit card issuer, you may find the charge reversed and having the privilege of paying an additional fee for the umpire.  The key to avoiding this fee is encouraging every customer, as often as possible, to contact you first if they have any questions.  If chargebacks happens too often, you will also see an increase in your holdback funds.

• Holdbacks or reserve funds – These are the fund your processor holds just to make sure that there is cash on hand for chargebacks and paying important things like paying fees.  As you get started, you may be surprised that the first few days or weeks of sales are held in an account that you cannot touch.  These are your holdback funds.  Over time, the holdback requirements should decline.  Consider it a compulsory savings account.

• Annual fee – Wait, I have a monthly service fee, minimum usage fee, statement fee, gateway fee, transaction fees , chargeback fee and now you want an annual fee as well?  Yes.

• Application fee – This is the fee to apply for your account.  It is also a leading indicator of your willingness to pay additional fees later in the relationship.

• Setup fee, activation fee, reprogramming fee – Fortunately these fees all have names that make them easier to decipher, even if they are not fun to pay.

Most processors will charge a good number of these fees, but you are unlikely to face them all.  Still, forewarned is forearmed.  Feel free to negotiate and shop hard for the services you need, and carry the cheat sheet along.

Good selling!