Beware Credit Card Processing Fees, Especially Refunds

Merchants periodically send me their credit card processing agreements after they have negotiated new pricing with their existing provider or when changing providers.

Usually, I find that the merchant has done a good job of negotiating rates and monthly fees. However, some of the peripheral fees are commonly overlooked. I realize that there are a plethora of fees in the card processing industry. Many have been created by the card companies themselves and many are created by the providers. In certain cases, it appears the provider covertly creates some fees.

Nonetheless it is important to understand every fee because a seemingly minor one can cost a merchant hundreds or even thousands of dollars each year. Not only are the fees important, but also how the processor handles all transactions is just as important.

How Does the Provider Handle Customer Refunds?

You must know how the provider handles a credit refund transaction. This is especially important for ecommerce merchants since they typically initiate more refunds than brick-and-mortar businesses. When you credit your customer, the interchange fee — the largest part of the processing fee — is refunded back to the provider.

Some providers return the refunded interchange to the merchant and only charge a small fee to route the refund. Some providers keep the interchange and charge a transaction fee. And some not only keep the interchange but also charge the merchant an additional processing fee and transaction fee on the refund. The difference in these three ways of handling refunds can have a large impact on your cost. Say you had $10,000 in credit card refunds and each refund was for $100. The first refund method shouldn’t cost you more than $20. The second method would cost you around $250. The third method would cost you around $500. This cost is even more significant when you consider that you made $0 in actual sales.

Does the Provider Charge an AVS Fee?

Some providers charge ecommerce merchants an AVS (address verification system) fee on every transaction. They generally set the fee at 5 to 10 cents per transaction. That may not seem significant until you look at the number of transactions you process each year. Ten cents on a $100 transaction is equivalent to an additional 0.10 percent processing rate. Lastly, depending on how the provider charges for AVS, there can be far more AVS fees and sale transactions. The only AVS fee you should see on your statement is the 0.75-cent AVS fee MasterCard charges. Avoid all other AVS fees. Below is an example of a provider’s AVS fee.

AVS fee example.

AVS fee example.

Visa, MasterCard, and Discover charge additional fees when a customer purchases goods and services from a U.S. merchant using a card issued outside the U.S. Currently, those fees are as follows.

MasterCard Cross Border Fee: 0.40 percent
MasterCard Support Fee: 0.85 percent
Visa Int’l Service Access Fee: 0.40 percent
Visa Acquirer Fee: 0.45 percent
Discover Int’l Processing Fee: 0.40 percent
Discover Int’l Service Fee: 0.55 percent

However, some providers can inflate these fees. Others may add a handling fee in addition to the fees charged by the card companies. Both of these methods can have a significant impact on the cost of accepting international cards. Below are two examples. The first is an inflated fee and the second is the provider’s additional international fee.

Inflated fee example.

Inflated fee example.

Additional provider fee example.

Additional provider fee example.

Does the Provider Charge an Annual Fee?

Most merchants watch for monthly fees. However, I have found that many merchants forget that there could also be annual fees or do not add them to the overall cost of processing. Annual fees are provider fees, not card company fees. Some providers have convinced merchants to accept annual fees versus additional monthly fees. I recently reviewed a merchant agreement for a small ecommerce company that had a $99 “Annual fee” plus a $99 “PCI Compliance fee.” For some reason, those fees did not seem excessive to the merchant until I pointed out that $198 in annual fees is equivalent to $16.50 in monthly fees. When the merchant added the $16.50 to his other monthly fees he quickly understood how costly the provider’s fees really were.


  1. How a provider handles refunds is typically important to ecommerce merchants, versus brick-and-mortar businesses.
  2. Be sure to review all fees when determining the provider’s total cost.

Phil Hinke
Phil Hinke
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