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COMPARISON OF COST BETWEEN THE MERCHANT
ACCOUNT HOLDERS
Banking is directly or indirectly
related to the monetary terms and costs.
The banks charge a specific amount of
money to provide various services to its
customers. There are different costs
incurred in different types of merchant
account. In the modern economic theory,
merchandise business would be of great
advantage if a merchant has full
advantage over another in the same line
of production and the other merchant
also has an advantage over the first
merchant in another line of production.
When the comparative cost advantage is
different, the trade will rise and can
be continued for a longer time in the
future. Below given is an illustration
of the matter. Let us see how it works.
For instance, there are two merchants
doing the same type of businesses.
Merchant ‘M’ and Merchant ‘O’.
Merchant M’s business = marginal cost of
processing VISA card is up to five
dollars and marginal cost to process
MASTERCARD is 10 dollars.
Merchant O’s business = marginal cost of
processing MASTERCARD is up to 6 dollars
and the marginal cost to process VISA
card is up to 4 dollars.
Here, we can see that merchant O can
process both VISA and MASTERCARD at a
cheaper rate than merchant M. But the
comparisons of cost are higher for
processing MATERCARD in merchant M’s
business. Merchant O has an absolute
advantage for processing both the credit
cards at cheap rates. Thus merchant M
and merchant O’s business ratio is 1:2.
Merchant M will, therefore, pay the
merchant O to specialise in processing
of credit/debit cards.
The monthly fees of the statements are
charged by most of the internet service
providers. The fee ranges below ten
dollars. The more number of transactions
takes place, the more discounts a
merchant account holder can get for
processing of the credit or debit cards.
A minimum monthly fee is charged which
is mandatory. This monthly fee is about
twenty five dollars only. Commission, as
discounts, are given to the merchants
for processing the credit cards. There
is a fixed charge for processing of the
debit/credit cards. It may be 1 dollar
to 2 dollars for each transaction. The
volume of sales may be more or less but
the fee per transaction is the same for
any sale volume. Dealings or
transactions, which are made through
internet banking services of a merchant
account does not require a card
terminal. But in other merchant
businesses like restaurants and other
small retail businesses, a credit card
terminal is a must. The cost of the
credit card terminal ranges from one
hundred and twenty dollars to one
thousand dollars each. Other devices
like a computer, a barcode reader and
cash drawers are also needed for this
kind of businesses. This will increase
the cost of the merchant account holder
but it can be compensated by the margin
of profit. If any merchant’s discount
rate is fixed to 4 percent of the total
value of sales, then if he/she makes a
sale of twenty dollars then the merchant
gets a discount of eighty cents.
But if a customer is not satisfied with
the services, he/she may ask for
refunding of the money. Refunding is
also done via the same credit card which
a person holds. But there is a
chargeback fee of about ten dollars to
twenty dollars for the cancellation. |
