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The Monthly Minimum Explained

What exactly is the monthly minimum fee? Well, this is a fee which guarantees the merchant will be paying a minimum amount each month in processing fees. If a merchant’s discount fees do not equal their monthly minimum fee they will be charged the difference between the two in addition to their discount fees.

Example:

A merchant has a discount rate of 2.50%, a monthly minimum of $25, and a monthly volume of $600. The discount fees for the month will be $15.00 (.025 * $600). Because their discount fees are less then their minimum fee ($15.00 < $25.00) they will be charged an additional $10.00 as a monthly minimum fee ($25.00 - $15.00).

So, what is the purpose of this fee? Merchant account providers and their sales agents make their money by taking a very small percentage of every sale a merchant processes. Naturally this can be very lucrative. But, if a merchant is very small, they won't make very much money from them. So, to make up for this, they charge this monthly minimum fee. Then, when the merchant has a slow month, this fee is incurred and the merchant account provider still makes their profit from this merchant.

This fee is not required by Visa and MasterCard to have an account with them. Many processing companies offer merchant account with excellent rates without the monthly minimum fee. So, if you are shopping around for a merchant account and are told that you will have a monthly minimum fee, say, “Thanks. But no thanks”.

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7 Responses to “The Monthly Minimum Explained”

  1. Leonard J. Mills

    Jim,

    1) In the above article does your “Thanks. But no thanks” mean should I accept a monthly minimum fee or NOT…

    2) Let’s say I got 2.30% VISA/MasterCard Qualified Discount Rate, and my monthly minimum fee is $25. I processed $1,087 this month (2.30% X $1,087), so I have met the monthly minimum. Do I still have to pay my monthly minimum fee of $25…?

    3) One processor gives 2.10% VISA/MasterCard Qualified Discount Rate and says no monthly minimum fees. I am confused here. A qualified rate is given to us to process minimum sales or we pay the monthly minimum fee. If that is right then why is the processor at all giving us the 2.10% discount fee? What does he mean here…?

    Please clear me of this…

  2. Jim Conners

    1) You should not accept a monthly minimum. They only serve the interests of the merchant account provider. Not the merchant.

    2) No. Because the fees incurred ($25) meet or exceed the monthly minimum fee ($25). As a result of meeting the monthly minimum no extra fee is incurred.

    3) Your statement, “A qualified rate is given to us to process minimum sales or we pay the monthly minimum fee.” is incorrect. The monthly minimum fee is an extra fee that not all processors charge. You have to pay a qualified fee as it is how Visa and MasterCard work. The monthly minimum fee is an extra fee charged by merchant account providers, not by Visa and MasterCard, and it uses to the qualified rate to help determine if you pay that fee.

    Hope that helps.

  3. Leonard J. Mills

    Thank for the first two answers…

    3) Since I have an offer no monthly minimum fee. How much would I have to pay for 2.10% discount fee…

  4. Leonard J. Mills

    Jim,

    I got how it works now. Thanks…

  5. brad

    Yeah thats very helpful, we have checked few processor such as ChronoPay, velocitypay, pppay for EU, they dont charge monthly or annual fees.

    http://www.electronic-payments.co.uk/product_data.jsp

  6. Tomer

    I don’t agree that you should always say no with minimums. The provider has to earn too, if it doesn’t on the monthly minimum, the discount fee would be higher.

    So if you are a large stable merchant with more than a few grand per month, a monthly minimum may be good because you won’t pay it anyways and that way you probably get a better discount fee.

  7. mss

    Tomer, the provider does have to earn too but he has many different options to charge fees and the monthly minimum is not the most appropriate one. In today’s world, you have to have your customers’ best interest at heart if you want to be successful, even if it comes at the expense of an extra dollar of revenue. Charging a monthly minimum is not in the best interest of the customer.

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