A merchant account monthly minimum fee really isn't a fee by itself — it's more like a benchmark.
What is a merchant account monthly minimum fee?
A monthly minimum fee is one of the more confusing credit card processing fees because it's not really a fee at all. A monthly minimum is more accurately described as a benchmark that may result in a fee, rather than as a fee by itself.
A monthly minimum indicates the minimum amount in fees that a processor will collect in any given month. If actual fees resulting from processing activity don't meet or exceed the minimum amount, the processor will charge however much is necessary to meet the minimum.
A catch with monthly minimums is that processors determine which fees count toward the minimum and which don't. For example, one processor may count all discount and credit card transaction fees toward the minimum while another may only count its discount rate.
Very rarely will any processor count fixed monthly or annual fees toward a minimum.
Here are a few examples to illustrate how a monthly minimum fee works and when a business would incur charges as a result of not meeting the minimum.
In this example, let's pretend that Business A is using a processor that counts all but monthly charges toward a $25 monthly minimum fee.
During its first month, Business A processed $3,000 in credit card sales resulting in charges of $20. In this case, the processor will charge $20 in fees plus another $5 “out of pocket” to bring Business A's total fees up to the $25 monthly minimum fee.
During its second month, Business A processed $6,000 in credit card sales resulting in charges of $40. In this case there will be no additional charge resulting from the minimum because the actual charges of $40 are greater than the $25 monthly minimum fee.
In this example, let's pretend that a business is using a processor that counts only the net discount fee toward the minimum. The business' rate is interchange plus 0.25% (twenty-five basis points) with a $20 monthly minimum fee.
If Business B processes $5,000 in credit card sales the resulting discount fee will be $12.50 ($5,000 * .25%). In this case, the processor will charge an additional fee of $7.50 to bring fees to the monthly minimum of $20.