Since so many organizations are involved in each Shift4Shop transaction, there are a few different types of fees that need to be distributed which are explained below.
American Express and Discover
Accepting card brands such as American Express and Discover can be an expensive endeavor for merchants. However, with nearly 40% of all business travelers utilizing American Express as their corporate credit card and millions of cardholders carrying Discover cards, it’s viewed as a necessary expense.
All processors charge a flat fee per transaction for the authorization request. This fee may be listed as its own line item on your statement or it may be included in your discount rate.
Another type of charge you may see is a chargeback. On any given credit card transaction, the cardholder has up to 60 days from the time he receives the statement referencing the transaction to dispute the charge. If the cardholder files a complaint with his issuing bank that a charge was not valid, the issuing bank generates a retrieval request that is sent to the merchant, who is charged a fee that runs from $10 to $50 per retrieval request (average $15).
Your communication cost is what a merchant pays for the connection that moves a transaction from one point to another. This cost varies greatly depending on your chosen method of connection. A dial-up connection is still often used but can be costly, since the processor has to maintain toll-free phone circuits and modems for the calls into its network. Another option is using an internet connection. Another form of communication is a private line between the merchant and the processor. Private lines are primarily used by very large merchants that process thousands of transactions per day and, since the merchant has a separate agreement for this line, there are no communication costs in the discount rate.
The most cost-effective communication option is for merchants to take advantage of a payment gateway provider, such as Shift4, which uses its own dedicated, private-line connection to the merchant’s processor and therefore, merchants can save considerable money since the gateway pays to connect to the processor.
Discount Rate vs. Effective Rate
The discount rate is the fee a merchant pays to their MSP or ISO to handle the deposit of credit card funds into the merchant account, while the effective rate is the true cost of each transaction.
A large portion of the costs associated with credit card acceptance is the downgrading (non-qualification) of transactions. These are the transactions that do not qualify for the best possible discount rate because they don’t meet the data content or transaction timing regulations set by the card associations. There are many reasons for a transaction to be downgraded. A few of the most common are failure to settle within two days of initial authorization, missing/invalid transaction ID or Banknet data, missing or corrupt swipe data from the magnetic stripe read of the card, or no AVS attempt on manually keyed transactions.
These are the fees that card associations charge for processing each transaction. They are paid by the merchant bank to the issuing bank, which then pays the card association. This is to cover the cost and time associated with getting funds and billing information to the merchant bank and issuing bank, respectively. There are a variety of interchange fees that are based on how the transaction is sent and the type of merchant account. They usually comprise a percentage of the total bill as well as a flat, per-transaction rate.