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Evaluating a Merchant Credit Card Processor — Checklist

January 09, 2020 6345

Comparing processors to their competitors can be a daunting task. There is no easy way to do an apples-to-apples comparison, but we will provide you with some of the secrets of the trade, including the types of fee and pricing schedules in the marketplace and what to watch out for in your merchant agreement.

If you are considering this daunting task, you have either been approached by another processor claiming they can save you money or you have examined your latest merchant statement and realized your fees have skyrocketed since you enrolled many years ago. The first thing you will want to do before starting your due diligence, if you have a current processor, is determine your true “effective rate.”

You can determine your current rate with a simple analysis of your processing statement. Take the total amount of fees being paid and divide that by the total dollar volume of the transactions processed. The resulting number is called the effective rate – the average rate paid per transaction. We see effective rates between 2.5 percent and 4.5 percent for dental practices, depending on the type of processor utilized, how long they have been with their existing processor and how the transactions are settled. This checklist will provide an overview of the industry and tips for savings on your processing charges.

Industry Overview/Explanation of Terminology


Not all processors are created equal. Merchant accounts are marketed by two basic methods: the processors who have a direct link to Visa/Mastercard Interchange or an authorized agent for the bank that is directly registered with both Visa and MasterCard as an ISO/MSP (independent sales organization/member service provider). If you are working with an ISO, know that there is an additional layer of cost. Don’t misinterpret this as bad, many ISOs are very competitive (due to low overhead) and their service levels are usually better than what you can expect from one of the larger processors.


A significant amount of the fees that are charged for processing consists of charges that have to be paid to the issuing banks. These charges are referred to as “Interchange.” Interchange fees are set by the banks and the amount depends on a number of factors established by the bank. They regularly add new Interchange levels and change the rates and qualification criteria and levels. With more than 500 Interchange rates, it is impossible when you accept a debit or credit card for payment to know what the actual Interchange cost will be for the card. There is no way around paying, at minimum, the Interchange rate plus a fee to the processor for completing the transaction.

Pricing models

Most processors use four common pricing models:

  1. Interchange plus pricing. Visa/MC and Discover assess an Interchange rate, Interchange fee and assessment fee for each card transaction type. These rates and fees are “passed through” to the merchant directly and the processor then adds a flat discount rate and authorization fee on top of the true cost of Interchange. This type of pricing model is typically the most advantageous for the merchant in that they are only being charged actual cost, plus an added amount to process the transaction. Discount rates can range between 0.06 percent and 0.50 percent. Authorization fees range from 10 cents to 50 cents per transaction.
  2. Three-tier pricing. The three-tier pricing is the most popular pricing method and the simplest system for most merchants to understand. In this model, the processor groups the transactions into three groups (tiers) and assigns a rate to each tier based on a criterion established for each tier. All of your transactions will fall into one of these three buckets, with the exception of debit and American Express, which should and will likely have separate pricing.
    • Qualified. The card is swiped through a terminal and the merchant batches the transactions within 24 hours. Most swiped credit cards without any associated rewards will fall into this category. It is typically the lowest rate.
    • Mid-qual. This rate applies to rewards cards and key-entered transactions. It also applies to charges batched in 24- 48 hours, which would have been categorized as “qualified” had they been batched sooner.
    • Nonqualified. All corporate and government cards are charged this rate regardless of batch processing time. Other transactions batched after 48 hours are also charged this rate. This is typically the highest rate charged.
    • Debit. Debit cards with PIN pad entry have a much lower Interchange then regular credit cards, due to the Dodd-Frank regulations that were passed in late 2011. Enabling your patients to enter their PINs when paying with debit cards will reduce your processing costs.
  3. American Express. American Express operates a closed loop network whereby it issues credit cards directly to cardholders and merchant accounts directly to businesses. Therefore, it also governs its own discount rates. The rate that a business pays to accept American Express will remain the same regardless of the processor it uses to process Visa/MasterCard and Discover. American Express sets its own discount rates, which are exactly the same for all processors. The rate ranges between 2.5 percent and 3.5 percent plus a transaction fee.
  4. Flat rate. Several mobile processing companies have entered the marketplace over the recent years. Their product allows virtually anyone to accept credit card payments using their personal mobile device and they charge a flat rate for swiped (approximately 2.75 percent) and hand-keyed (approximately 3.5 percent plus 15 cents) transactions. Generally no other charges period.


When you start accepting credit cards in your office, you will pay fees for everything from setup and application to processing and customer service. But no two processors charge the same. One vendor may advertise a low qualified rate but charge more for service items. Another may charge for setup and administration but waive its fees on other services. Processors are notorious for charging a number of fees, in addition to the “discount fee,” for processing, and their merchant account provider’s “terms and conditions” allow them to change existing fees or impose new ones. Below outlines some of the common fees and a description.

Administrative/service fee
a fee charged for ongoing services to the merchant account.
Application fee
a fee charged for accepting your application. Typically associated with running your credit report.
Annual fee
a fee charged one time each year to cover certain operational expenses incurred during the prior year.
Authorization fee
a fee that is charged each time authorization is obtained on a bank card.
AVS fee
a fee assessed each time the address verification service is utilized.
Chargeback fee
a flat, per-occurrence fee that is charged to cover processing charges incurred because a transaction has been disputed by the cardholder.
Discount rate/fee
a percentage that is paid to the processor on each transaction. This typically comprises the largest portion of your costs. This is what most processors market and use to lure new customers. It varies depending on the type of card and the type of transaction. It also includes Interchange, which are fees set by the issuing banks. A competitive discount rate ranges from 1.80 percent to 2.4 percent for qualified Visa/MasterCard and Discover. Do not confuse low debit card rates, for Visa/MasterCard and Discover. Debit cards will process at significantly lower discount rates, ranging from .50 percent to 1 percent, plus a nominal transaction fee.
Equipment fee
a fee charged for POS devices, terminals, printers, imprinters and any other equipment used by a merchant.
IRS report fee
a recent fee imposed by processors who now have to report your processing information to the U.S. government.
Maintenance fee
a fee charged for changes to the merchant account after the initial setup.
Minimum discount fee
the minimum amount billed either daily or monthly for discount fees. If the actual discount due is not equal to or greater than the minimum, the merchant will be charged the minimum discount fee.
Network access fee
a fee charged for providing POS device access to the electronic network, including authorizations and declines.
PCI compliance fee
this is a fee that many processors are now charging to help facilitate the annual compliance testing. Watch for this fee either quarterly or annually, which can range $99-$200 annually. Most processors use a third-party company, such as Trustwave, to facilitate the testing and share this fee with it.
PCI noncompliance fee
a fee charged to merchants who do not return a PCI Compliance Validation Certificate, which can be obtained by completing and passing on an annual basis a Self-Assessment Questionnaire and/or Quarterly Network Scan (for merchants who electronically store cardholder information or whose application systems are connected to the Internet) according to the applicable business level as defined by PCI Security Standards Council. We have seen this fee range from $20 to $40 per month, for every month the merchant is not compliant.
Reprogramming fee
this fee for reprogramming your existing equipment or software.
Supply fee
a fee charged for merchant supplies, such as printer paper, cartridges, etc.
Termination fee
a fee charged for canceling or terminating a merchant agreement. There is, however, usually room for negotiation with this fee, especially in the event that you have unresolved problems or issues that the provider cannot resolve. In any event, the fee should be a fixed dollar amount and can range from $100 to several thousand. Before signing a new merchant account agreement, look for this fee and negotiate upfront.
Transaction fee
the amount charged per transaction, whether it’s approved or declined. The fee is set according to the type of transaction; for example, swiped, keyed, swiped with PIN. Most companies charge between 10 cents and 30 cents.
Junk/hidden fees
This category covers the variety of other surprise fees that some processors charge. Regularly, we see new fees and descriptions for increased costs to merchants. We caution you to read your statement every month, if you are seeing something new and your effective rate is out of the ordinary, question it.


Generally speaking, there are two equipment gateway options for dental practices, including:

Credit card swipe machines

Dental offices should have a credit card machine that accepts EMV chip technology for credit and debit cards. This will enable you to receive the lowest qualified processing rates. In addition, a machine that offers a PIN pad will also save the office when debit cards are presented. New machines range from $300 to $800, but be aware that many machines can be reprogrammed and utilized with a change in processor. Many processors will also offer lease payments for equipment. A lease will run you up to $40 a month over a three-year period and typically are not very cost-effective.

Desktop software

Instead of a card swipe terminal, desktop software is becoming more and more popular and is usually less expensive than purchasing equipment. The credit card can be swiped through a magnetic stripe reader attached to the computer. The software transmits the transaction over the Internet to the processor. Magnetic stripe readers are less expensive than the actual machines, approximately $100-$150.

Rate Analysis

Understanding your true credit card rates is confusing at best. Your processor or bank may highlight one low rate, but that rate may only apply to a very small percentage of transactions. Processors charge several different types of fees, including transaction fees, monthly fees and annual fees. With this in mind, it is important to look at each quote in aggregate, being careful not to focus solely on one particular fee, such as the processor’s “discount rate.”

Understand your statement.

The layout and structure of statements vary widely among processors, making for many different formats. Not only does this make it tough to understand charges on individual statements, it makes it tough to learn how to determine what are base costs (Interchange) and what are markups (processor’s fees). The markup and other ancillary fees are the only negotiable expense. If you don’t understand your statement, call your accountant or processor and request they walk you through each line item so you can be armed with knowledge in this area.

Determining your “effective rate.”

As described in the introductory paragraphs, determining your true effective rate is very simple. We recommend you take 12 merchant statements to get a true picture because some fees are charged quarterly or annually. At minimum, take one statement and total all of the fees being paid and divide that by the total dollar volume of the transactions processed. The resulting number is called the effective rate – the average rate paid per transaction.

Apples-to-apples comparison.

Now that have your effective rate determined, you can truly compare processors, even those who offer different pricing models. Be armed with your effective rate and go to your local bank, major bank and maybe your warehouse-endorsed provider to see how it stacks up with their analysis. Have them do a rate analysis on your behalf, and ask them what the “effective rate” works out to be, not how much they will save you. Demand that all quotes have full disclosure in writing, listing every rate and every fee.

Tips for Saving/Best Practices

Always settle transactions on a daily basis.

If you wait longer than 24 hours after they are authorized, the fee rate will be higher. You can set up your terminal to automatically settle card transactions at the end of each business day.

Accept PIN debit transactions.

Enabling your patients to enter their PINs when paying with debit cards will help to reduce costs on these transactions. Debit cards typically have a very small Interchange fee and nominal transaction fee, as per the Dodd-Frank regulations.

Always process cards through a card reader.

Using a keypad to enter the card number will result in higher fees for that transaction. Be sure that staff are avoiding unnecessary key-entered transactions. Keep equipment clean and replace malfunctioning equipment.

Enter the ZIP code for hand-keyed transactions.

If the magnetic stripe or EMV chip is not working, hand-keyed transactions cannot be avoided. Ask patients for the ZIP code associated with the billing statement and enter it correctly. This will ensure that you pay the lowest fee for this type of transaction.

Limit card-not-present transactions.

This is when a patient gives you their credit card over the phone or over the Internet. You will pay a higher fee for this type of transaction. Again, answer all terminal-prompted questions, to ensure you receive the best rate for this type of transaction.

Retain records for five years.

This will ensure you have the proper documentation should you receive any chargeback requests. Respond to requests quickly with the required documentation.


PCI Data Security Standards.

Dental offices are required to comply with Payment Card Industry (PCI) Data Security Standards (DSS). The PCI DSS was developed by Visa and other major card brands to help facilitate the broad adoption of consistent data security measures on a global basis. If you store, process or transmit data for payment cards, you must ensure you keep the data secure. 


EMV stands for “Europay, MasterCard and Visa” and it is the IC “chip” technology that has replaced the magnetic stripe that has been the standard in the U.S. for credit card data. All processors should be able to support merchants’ acceptance of chip transaction effective April 1, 2013. Full migration for merchants at point of sale is expected by 2017. While EMV chip acceptance is technically not mandated for merchants, but effective October 2015, the fraud liability shifts to the merchant if EMV is not utilized.

IRS Regulations – 1099.

Regulations require that processors send a 1099 annually that reflects all credit card processing volume. Please ensure that your 1099 Tax ID number and name match the name under which you file your tax return. This will ensure you receive the proper paperwork and are not charged any mismatched fees.

Vendor Options

While CDA Endorsed Services does not have a formal endorsed relationship with any vendor, the options below could provide a viable solution for your practice.

  • Your local bank. You do business with a local bank in your area. Oftentimes, local banks will bundle processing with some of the other business banking services needed. This is a good place to start and you should use it as a benchmark for comparing with other processors.
  • Major warehouse-endorsed provider. Costco and Sam’s Club both partner with the larger processors to promote merchant accounts to their business members. We have found that both of these warehouse programs are very competitive and, like the ADA program, can provide an extra layer of comfort knowing it is backed by a major company.
  • Mobile providers. Mobile providers are still relatively new to the marketplace; therefore, there is not a lot of history of support and longevity. If you are considering this as a solution for your practice, investigate thoroughly and proceed with caution. 


There is no avoiding it: if you accept credit and debit cards, you will have to pay fees. Your best defense against hidden costs and unnecessary downgrades is to keep accurate records of your processing costs. Never trust a savings analysis done by a processor without first reviewing it and having it reviewed by a third party. Audit your records regularly to build your own benchmarks and evaluate your processor on an annual basis.

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