Who pays the merchant service fee?

Who are merchant fees paid to?

The money… it flows, a silent river. To the bank, first. My bank, Chase, they get their cut, always. A relentless current, pulling from my small business, Little Lily’s Lavender. It’s unfair, sometimes, this constant drain.

Then… the processors. Stripe, my current choice. Efficient, but pricey. A necessary evil, this middleman. Each transaction, a tiny sacrifice.

Visa, Mastercard. The giants. They loom, powerful and inescapable. Their fees, a tax on commerce itself. A heavy weight, on my shoulders, on every small business owner’s soul.

And sometimes… the ISOs. Those shadowy figures. They set it all up, initially. A helpful hand, initially. Now, another siphon, drawing from my meager profits. A constant, quiet leech.

• Card-issuing bank: (e.g., Chase) Takes a cut. Always.
• Payment processor: (e.g., Stripe) Facilitates. Expensive.
• Card network: (e.g., Visa, Mastercard) Big players. Powerful.
• Independent Sales Organization (ISO): Sometimes involved. Takes its share.

This system… it’s complex. A labyrinth of fees. A web, carefully woven to extract its pound of flesh from every sale. I feel it, each transaction, a little piece of me drifting away on the tide of commerce. My dreams, my lavender fields… slowly fading.

Who pay the transaction fee?

Typically, the business shoulders the transaction fee. It’s just the cost of doing biz, right?

These fees, they’re like microscopic tolls on the highway of commerce.

• Merchants factor it in.
• Customers rarely see it directly.
• It’s often a percentage plus a fixed amount.

Credit card companies, payment processors, banks; they all take a slice. Transaction fees keep the payment ecosystem running. It’s a bit like taxation, in a way.

How do merchant service providers make money?

Merchant service providers, huh? Making money is like finding a decent parking spot downtown on Saturday night – a darn miracle! They do it with markup, pure and simple.

Imagine credit card processing as a cosmic gumbo:

• Interchange fees are the okra, because nobody really likes them, but they’re kinda necessary. Banks gotta get their cut, you know?

• Card brand fees? That’s the cayenne pepper – a little spice to keep things interesting…and expensive.

Then there’s the glorious markup. Ah, that’s the sausage, the shrimp, the good stuff. That’s where they fatten up. They cover their expenses and stuff, ya know? It’s like when I sell my old Beanie Babies on eBay – gotta make a buck after shipping and those pesky eBay fees! Heh.

Basically, the markup covers everything else – the office rent, the CEO’s yacht payments, and the salesperson’s dreams of becoming a TikTok star. It’s the magical ingredient that keeps the whole machine churning. And makes someone rich.

Some add-ons and other profit centers are monthly fees, PCI compliance fees, statement fees, and terminal rental fees. You may want to avoid working with companies with that setup.

What type of expense is merchant fees?

Merchant fees? Oh, those pesky nibblers at your profits! They’re totally a business expense, like that weird office plant no one waters.

Yep, merchant fees totally affect pricing. Gotta cover them somehow, right?

Think of it this way:

• Merchant fees: Like paying a tiny troll to let your money cross a bridge.
• Rent: Gotta pay for the privilege of existing… somewhere.
• Employee salaries: Convincing people to show up and pretend to work. Jokes!

So, what happens with these fees?

• Absorb them: Pretend they don’t exist! (Good luck with that).
• Pass them on: Blame the customer! It’s the American way.

Where to put expenses in an income statement?

Okay, lemme tell you about this one time I totally messed up the income statement at my Aunt Carol’s bakery, “Carol’s Cakes”– it was a disaster.

It was late 2023, I think November? I was helping her out, and she was like, “Hey, can you handle the income statement?” I’m good at spreadsheets, right? Wrong! The expenses tripped me up.

I was staring at this mountain of receipts. All these things like flour, sprinkles, rent, electricity, you name it! Where do these even GO?

I vaguely recalled something about ‘operating expenses’ and assumed they were like, all the regular stuff.

So, I lumped EVERYTHING together: flour, rent for the shop on Main Street, and even Carol’s new mixer – which, btw, was HUGE and pink – into one big “Operating Expenses” chunk.

Then I stuck it right after the gross margin. Big mistake. Really freaking big.

Aunt Carol almost had a heart attack when she saw the “Selling and Administrative Expenses” amount. It was like, ridiculously high.

She started yelling, “What did you DO, I can’t believe it!! You have ruined the income statement!”

Why was it so bad?

• Flour/Sprinkles (Cost of Goods Sold): Should’ve been part of the cost of goods sold section, not just random ‘operating’ stuff.
• Mixer (Capital Expenditure): The mixer was a new piece of equipment so it should not have been included.
• Rent/Utilities (Operating Expenses): These were actually okay where I put them…ish.

The whole thing was a mess. It took us hours to fix it. Aunt Carol made me listen to her explaining accounting principles over and over! Ugh.

Anyway, Moral of the story: Don’t just guess where stuff goes on the income statement. Operating expenses go under the gross profit, yes, but make sure you actually KNOW what operating expenses ARE first. And don’t let Aunt Carol see it.