Watch out for gateway costs

If you are accepting credit card payments online, you are probably paying more fees than you think you are. When you signed up for your payment gateway and merchant account you probably saw compelling transaction rates and maybe even some “free” features like a free payment seal (that is just a picture). Beware, unless you know what to look for, you are virtually guaranteed to pay more than you are expecting. Here is a guide that will save you from getting hammered by unexpected expenses.

How they entice you

free features for payment gateways

Lists of free stuff: When you start shopping around for a service to let you accept credit cards on your website you will be presented with lists of things they “give” you for free.

  • Free mobile app,
  • Free payment seal (this is just a picture)
  • Free “award winning” support (who’s handing out the awards?)
  • Free fraud prevention tools
  • Free setup
  • Free reports
  • And so on…

What’s ridiculous is that these are all things you would probably assume would be included with your subscription to the service. So you sign up for a service that will probably cost you hundreds of dollars (if not thousands) per year and you get “free support” and a free image to show on your web site. Ooo how generous of them! Don’t be pulled in by the laundry list of services and features that are tagged as FREE. It doesn’t actually mean anything. Make sure you look at the list of things that are NOT free.

How they fleece you

They charge you for stuff you don’t think about: Did you know that in order to accept credit card payments you have to have BOTH a payment gateway AND a merchant account? There are fees associated with both the payment gateway and the merchant account, and that just begins the bombardment of technical details and the vocabulary of confusing terms all having fees associated with them. Here is a list of some of the fees they have invented to squeeze as much money out of you as possible without you realizing it.

Address verification fee: Check to see if the billing address entered matches the billing address on file with the credit card company.

Cancelation fee: You might be under a contract for a year or even longer. If you cancel your account too early you are fined. WARNING: They may say “cancel at any time” or “no contracts” but are only referring to the payment gateway. Then in the fine print, they sign you up with a two year contract on your merchant account. Of course, there’s basically nothing you can do with just the merchant account. I personally got burned by this trick to the tune of $300 by PaySimple a couple years ago.

Chargeback fee: If your customer disputes a charge from your company on his credit card you pay a fee. I’ve been running ecommerce sites for 7 years and have never once won a charge back case. In the real world if you get a disputed charge there is a 99.9% change you’ll pay this fee. Even if you work out the issue with your customer over the phone and they agree to the charge, you’ll still get hit with this fee. Merchants (you the seller) never win charge back disputes.

Gateway fee: This is usually a monthly fee for using the payment gateway, the service that passes credit card data around the internet to either authorize or deny a credit card charge.

Monthly minimum fee: Some gateways force you to rack up a bill of $10 or so, otherwise they charge you a fee. So, if you don’t sell enough stuff through your website to amount to more than $10 in fees, you still get charged $10 anyway.

Statement fee: This fee is charged by virtually all merchant account providers and is usually about $10. You get charged this fee wither you receive paper statements or not. I find this fee to be particularly vexing. You are going to charge me to produce a statement to show me how you are fleecing me? Also, beware, there may be different LEVELS of statement fees. Some providers charge you even more if you want a line-item statement rather than just a summary.

Transaction fee: This is the fee you pay every time you process a credit card transaction. It is usually a combination of both a percentage fee and a fixed fee. For example, something like 2.9% + $0.30 per transaction. But wait! Is it a Qualified or Non-qualified transaction?!

It would be like if you bought a movie ticket, then when you get into the theater you have to pay another fee to unfold the seat.

Qualified vs Non-qualified transactions

When a payment gateway advertises what their transaction rate is, the rate they promote is their lowest rate for “qualified” transactions. The problem is almost all your transactions will be “non-qualified” transactions at a much higher rate. The best way to understand what counts as a qualified transaction is to know what non-qualified transactions are.

A Non-qualified transaction is a transaction processed with a credit card that offers the customer points, discounts, miles, or any type of reward. Business credit card transactions are also non-qualified. Other types of non-qualified transactions are international orders, orders where the billing address is incomplete, or the order is deemed high risk.

As you can see, this covers basically all the types of transactions processed by the typical e-commerce store. If by some miracle, the transaction is not a non-qualified transaction then it is a qualified transaction and you get the lower rate. That means a qualified transaction is one that is domestic, all the billing information is correct, the CCV code (the last three or four digits on the back of the card) is correct, and the credit card offers no rewards of any type.

Oh, and it almost always cost more to process Amercian Express cards than any other card type. So, watch out for American Express fees that might creep into the fine print.

Always read the fine print

My last piece of advice is to always read (or at least try to read) the fine print. For example, as of the date of this writing (10/30/2013) here are a few highlights from the fine print if you are signing up for the popular Intuit Merchant Services.

  • Most rewards, corporate and special card types are considered non-qualified transactions and merchant will be charged the non-qualified rate.
  • Transactions that do not meet the requirements for card-swiped and or key entered rates will be charged a non-qualified rate of 3.96%. Non-Qualified transactions are charged an additional $.07 each. (emphasis added)
  • The PCI Compliance fee… will be charged annually… $35 for 1-24 transactions, $50 for 25-99 transactions, or $100 for 100+ transactions.

So that means you will be charged 3.96% + $0.37 per transaction for almost all your transactions and you will have another $35 to $100 per year snuck into your bill for the PCI compliance fee!

So what can you do?

There are a couple things you can do to help reduce the confusion from all of this. There are a few companies that will give you everything you need (payment gateway, merchant account, etc) all-in-one with everything included for one set rate for all transactions including American Express cards.

There are also a couple ways to accept payments without credit cards at all, and therefore bypassing all of these confusing fees.

  • Dwolla – No percentages. No hidden fees. Just 25¢ per transaction or free for transactions $10 or less. You pay with your bank account, not with credit cards. This is referred to as a direct debit transaction.
  • GoCardless – Just 1% per transaction, capped at £2 No monthly fees. No hidden fees. No set-up fees. Go cardless is also a direct debit provider.

Do you have any stories about payment gateways and hidden fees? How have you dealt wit this situation? Any tips to share?

18 comments

  1. Sell With WP says:

    Thanks for the great summary 🙂 We’re working on a couple articles about payment processors now and it’s sometimes really difficult to determine all of the potential fees you’ll pay until you’re already tied into the service (which is why we love Stripe and Braintree too!).

    One that we’ve seen that shocks people are international fees (usually labeled “currency exchange” fees). Even though many services say they’ll accept worldwide payments as part of the service, they’ll hammer you with international fees (ie, PayPal or their gateway – PayFlow).

  2. Sell With WP says:

    Thanks for the great summary 🙂 We’re working on a couple articles about payment processors now and it’s sometimes really difficult to determine all of the potential fees you’ll pay until you’re already tied into the service (which is why we love Stripe and Braintree too!).

    One that we’ve seen that shocks people are international fees (usually labeled “currency exchange” fees). Even though many services say they’ll accept worldwide payments as part of the service, they’ll hammer you with international fees (ie, PayPal or their gateway – PayFlow).

  3. James Murray says:

    Thanks
    for sharing this with us and giving us all the information. I think everyone
    information really Very nice post.

    • Hi James,
      I am looking for a partner for my Virtual Las Vegas Limo Embassy Provider. I am an affiliate of some vendors that gave me good prices for their vehicles. I do not have a payment gateway.

  4. James Murray says:

    Thanks
    for sharing this with us and giving us all the information. I think everyone
    information really Very nice post.

  5. jill_renee9 says:

    I am very interested in Dwolla and am considering Cart66 Cloud. I understand Dwolla is presently only available for US residents, those with a valid US mailing address and SSN. Still the fees are so attractive for customers that qualify. Is there a way to offer coupon codes for customers who choose to pay via Dwolla or any payment option that are most reasonable overall? Also, could the coupon code be automatic based on their payment choice, matching my “good choice” criteria?

  6. jill_renee9 says:

    I am very interested in Dwolla and am considering Cart66 Cloud. I understand Dwolla is presently only available for US residents, those with a valid US mailing address and SSN. Still the fees are so attractive for customers that qualify. Is there a way to offer coupon codes for customers who choose to pay via Dwolla or any payment option that are most reasonable overall? Also, could the coupon code be automatic based on their payment choice, matching my “good choice” criteria?

  7. Daniel says:

    I have Stripe set up on a website for one-time payments but when I use it for the subscriptions I have set up, the payment button won’t show up on checkout. Any suggestions?

  8. Hey Lee, you made a good point here. The important key with any of these merchant account providers and payment processors is to read the fine print. However, the problem is that many people do not, read them or do any research on the companies before signing up. Well, I was one of those people, and my merchant account (with a tiered pricing model) quickly became a nightmare. The good thing is that there are lots of options these days, particularly if you only sell online. You do not need the traditional merchant account for your ecommerce website. You can use one of the payment aggregators, which do not require a separate merchant account – like PayPal, 2Checkout, etc. I have used PayPal, and it was good. Another advantage with these online payment
    systems is that many do not have contracts, so you can cancel anytime without penalties or the hefty early termination fees, if it is not working out for you. I was wondering which is best for membership and subscription website.

  9. Gulnara Emirali says:

    Hi Lee,

    Thanks for very useful article. I can’t join Cart66 Cloud because of the payment gateways – my country is not included in the list. I don’t think I’m the only one who found your service and got an answer from your pre-sale support: “Unfortunately, if your Country is not on the list of supported Gateways, I don’t think there is much we can do”. So we have to go back looking for something else.

    But you know what? Lee, I still hope that there are some “Eagles” in your team who can give me not a standart answer! Not something like: “I don’t think there is much we can do” or “That’s a good idea, we’ll think about it.”

    My question is simple: how did it happen that there are +50 payment Gateways in your list now? My guess is because of the requests from people like me to add another payment gateway for their countries. Right? Another question: what has stopped your team to consider new requests and send answers like: if you are not in the list then there is not much we can do?

    And the last simple question: what can I do for you and your service in order to get additional “benefit” for the customers on your Features page? What can I do so there will be an option like Custom payment gateways? Let’s do something and add this feature! Just like other services implemented it already, have a look: http://kb.ecwid.com/w/page/49187841/AuthorizeNet%20Emulation
    Looking forward to hearing from you soon!

  10. Nandita says:

    Hi Lee,
    I am interested in Braintree for my e-store. But they have come back to me asking for a €500 refundable deposit to protect against customer chargeback. I have had paypal and sagepay before and have not had them ask any such deposit. Do you think this is industry norm? Please advice.

    Thanks & regards,
    Nandita

    • Lee Blue says:

      I wouldn’t say that is the industry norm, but it’s not totally unheard
      of. Depending on which gateway you pick, how new your business is, and
      how “risky” the underwriters think your products are, you may be asked
      for a chargeback deposit. As long as it is clear that the deposit is
      refundable both in full or in part at any time upon the cancellation of
      your account I wouldn’t be overly concerned about it. You may want to
      look at Stripe, they are very similar to Braintree and probably would
      not require the chargeback deposit.

      • Nandita says:

        Hi Lee,

        Thanks for the prompt reply.
        I did look at Stripe, but I am not pleased with their customer service. Upon writing to them on two separate email addresses given on their website,I got a response only after a week. Braintree on the other hand is a lot more quick in responding and have customer service number to call on if need be.

        Thanks you once again for your feedback.

  11. Taran Anand says:

    Hi Lee,
    I am confused in choosing a payment gateway for my NGO website for getting donations.
    Can you please recommend me a reliable and safe payment gateway for the same?
    Thanks & Regards,
    Taran

Comments are closed.