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COMPARATIVE COSTS IN MERCHANT ACCOUNTS
Banking and accounting is directly
related to monetary terms and costs.
Banks charge a certain amount to provide
services to the customers. There are
also various costs involved in different
merchant account types. In economic
terms, merchandise business would be of
mutual advantage if one merchant has
absolute advantage over another in one
line of production and the other
merchant also has an advantage over the
first merchant in another line of
production. When the comparative
advantage is different then the trade
will rise and can be continued for a
longer period of time. Let us discuss
the matter with an illustrative example.
Let us assume there are two merchants
doing the same type of business -
Merchant ‘A’ and Merchant ‘B’.
Merchant A’s business = marginal cost of
processing VISA card is 5 dollars and
marginal cost to process MASTERCARD is
10 dollars.
Merchant B’s business = marginal cost of
processing MATERCARD is 6 dollars and
the marginal cost to process VISA card
is 4 dollars.
In such case, we can see that Merchant B
can process both VISA and MASTERCARD at
a cheaper rate than Merchant A. But the
comparative costs are higher for
processing MATERCARD in Merchant A’s
business. On the other hand, Merchant B
has an advantage for processing both the
credit cards at a cheaper rate. Thus
Merchant A and Merchant B’s business
ratio is 1:2. Merchant A will,
therefore, pay the Merchant B to
specialise in processing of credit
cards.
Monthly statement fees are charged by
most of the service providers. The fee
varies below ten dollars. The more
number of transactions take place, the
more discounts a merchant account holder
gets for processing. A minimum monthly
fee structure is also set up and it is
mandatory. This monthly fee may be
around twenty five dollars. Commission
in the form of discounts are given to
the merchants for processing credit
cards. A fixed amount per transaction is
charged. It may be 1 dollar per
transaction. Whatever the value of sales
may be but the fee per transaction
remains the same for any sales volume.
If a merchant’s discount rate is fixed
to 3 percent of the sale then if he/she
makes a sale of twenty dollars then the
merchant gets a discount of sixty cents.
If a customer is not satisfied with the
services, he/she may ask for refund.
Refunding is also done through the same
credit card which a person holds. But
there is a chargeback fee of about ten
dollars to twenty dollars. Dealings or
transactions made through internet
banking merchant account does not
require a card terminal. But in merchant
businesses like restaurants and other
businesses, where the merchant and the
customer are present face to face, a
credit card terminal is a must. A credit
card terminal costs ranges from one
hundred and twenty dollars to one
thousand dollars. Other devices like a
computer, a barcode reader and cash
drawers are also needed for these kinds
of businesses. This increases the cost
of the merchant account holder but it is
compensated by the margin of profit. |
