CFXWorks-Coldfusion: Encryption, Secure Messaging and Credit Card Processing
[CC PROCESSING] - Processor Differences

Before you purchase any payment card solution from any vendor, please read through the following information to get a clearer understanding of the differences between processing payment card transactions through a 3rd Party Processor versus directly though an actual processor itself (i.e., Elavon).


A processor is an organization that authorizes and captures payment card transactions and submits these transactions to the bank systems gateway that links the processor to the bank. The three largest processors in North America are Vital, PaymentTech, and Elavon (formerly Nova Information Systems).


A 3rd party processor is normally a marketing organization that functions as a reseller of the services offered by one or more processors.


Over the last eight years CFXWorks has had the opportunity to talk with hundreds of merchants. A common thread among many merchants was their dissatisfaction and frustration with 3rd party payment solutions. Their dissatisfaction and frustration was focused on the following issues:

  • Excessive 3rd party processor fees
  • Hidden 3rd party processor fees
  • Lack of access to and control over transaction data
  • Inability to capture transaction in thier own database
  • Inability to create customized reports
  • Lack of support from their vendors and processor
Merchant Fees

Most merchants focus on cost as thier first priority in selecting a payment solution. We suggest that the most important factor should be reliability. An unreliable payment solution will cost you time, customer dissatisfaction and lost business. Therefore, it is important for you to consider that Elavon is rated the number 1 processing network by MasterCard � for speed, availability and reliability. In addition, Elavon competitively prices its services.


Merchants that establish a merchant are exposed to a fee structure that may have many components including:

  • Annual Fees - Some processors charge merchants an annual fee. This fee typically ranges from 150 dollars to about 350 dollars. It is in addition to the discount rate, monthly fees, quarterly fees and transaction fees paid by the merchant.
  • Discount Rate - The fee a merchant pays its acquiring bank/merchant bank for the privilege to deposit the value of each day's payment card purchases. This fee is normally quoted in the range of two to three percent of purchase value. However, the quote is likely to be for a specific type of transaction only under specific conditions. For example it may only apply to "card present" transactions when both AVS and CVV2 are present and verified. Therefore, merchants should verify that the quote they receive fits their specific transaction type and mode of operation.
  • Monthly Fees - Some processors charge merchants a monthly fee. It probably is reflected on the merchants account statement as "Other Fees". This fee typically ranges from a couple of dollars per month to about thirty dollars per month. It is in addition to the discount rate, quarterly fees, annual fees and transaction fees paid by the merchant.
  • Quarterly Fees - Some processors charge merchants a quarterly fee. This fee typically ranges from 50 to 150 dollars per quarter. It is in addition to the discount rate, monthly fees, annual fees and transaction fees paid by the merchant.
  • Transaction Fees - Some processors charge merchants a fee for each payment card transaction. This fee can range from a few cents to perhaps as high as thirty cents per transaction. It is in addition to the discount rate, monthly, quarterly, and annual fees paid by the merchant.

In addition to the above, their may be additional fees associated with the software used to connect the merchant to the processor. This software may be provided by the processor or from a separate source, for example CFXWorks.


To understand precisely what a merchant is paying for payment card transactions, it is absolutely necessary to understand the costs associated with each of the above. It will always be more than the discount rate.

Merchant Account

When a merchant establishes a "merchant account" they can do it directly through a processor (i.e., Elavon) or they can do it through a middleman referred to as a 3rd party provider. 3rd party providers are typically resellers of a processor�s services. A 3rd party processor may or may not insert a separate server in the transaction processing pipeline. If they have their server in the pipeline, then they must relay transactions received from the merchant to the processor through their server.

When dealing directly with the processor (for example, Elavon):

  • The merchant negotiates directly with the processor to establish their merchant account and all aspects of the fee structure assigned to the merchant account.
  • No middlemen are involved in negotiating this relationship.
  • No middlemen are involved in processing transactions. Transactions are sent directly from the merchant�s server to the processor.
  • There are no middlemen fees or hidden costs in this environment because there are no middlemen.
  • There are no service, reliability or performance issues caused by middlemen because there are no middlemen in the pipeline.

When dealing with a middleman 3rd party processor

  • The merchant negotiates with the 3rd party processor to establish the fee structure. Who pays the 3rd party? Ultimately the merchant pays both the "processor" and the "3rd party processor". This being the case, the merchant should carefully consider what additional services are provided by the 3rd party to justify the added cost.
  • In most 3rd party processor situations, transactions are sent first to the 3rd party processor�s system and then relayed to the processor. This introduces one more point of failure in the pipeline and may create issues related to performance,security, and of course fees.
  • When problems arise who�s at fault? Does the issue lie with the "3rd party" or the "actual processor"? With these two entities pointing their finger at each other, the Merchant can be left in a rather precarious situation. Meanwhile, until the issues/problems are resolved the merchant is losing sales as well as potential future customer relationships.

Other issues that may surface when using a 3rd party processor are:

  • Delayed receipt of funds � a processor, for example Elavon, automatically settles the merchant�s account every night. Therefore, the funds are deposited in the merchant�s banking account the next day. A 3rd party processor may remit payments only once or twice a month.
  • Risk of non-payment - Since the 3rd party delays payment for some period of time (sometimes several days), the merchant is exposed to loss if the 3rd party is not financially sound.
  • Chargeback risk - Customers are far more likely to dispute charges on their credit card statements that do not clearly identify the source of the charge. When a merchant account is established directly with the processor, the merchant�s organization name and telephone number will typically be displayed on the customers' statement. Charges processed via a 3rd party will typically have the 3rd party's name, which is often not relevant to the cardholder. Often, customers will simply call their credit card company and dispute the charge. This is likely to result in extra charges (called Chargeback fees), as well as extra work for the merchant and the customer that may result in your loss of the sale.
  • Less information about customers - Typically the online forms used by 3rd party processors are very generic and don't allow the merchant to collect additional information about the customers that could be helpful in future solicitations and customer development.
  • Higher costs - Typically 3rd party processors charge higher transaction processing fees, often 5 to 10 percent of the sale amount vs. the 2 to 3 percent you will incur if you negotiate directly with the processor. They may also hide a significant portion of their fees in what is commonly referred to as �hidden fees�. Hidden fees relate to monthly, quarterly and annual fees buried deep within the agreement signed by the merchant. For the unsuspecting Merchant these hidden fees can really add up quickly and bite into their bottom line.

Bottom Line

To minimize payment card processing fees we suggest that the merchant needs to focus on the following issues:

  • Establish your merchant account and negotiate your fee structure directly with a processor, for example Elavon. Steer clear of 3rd party processors. Insist on full disclosure of all of the fees.
  • Card-present transactions should result in lower fees than card-not-present transactions. But card-present transactions are not available to shopping cart applications deployed over the internet.
  • What security features will you enforce for each transaction? Accepting only transactions with validated AVS and CVV2 should result in the lowest possible fees. On the other hand, will you lose sales if you reject transactions from customers who do not supply the correct information?
  • Negotiate directly with the processor for the best deal you can on discount rates.
  • Finally, make sure you have full disclosure of all those hidden fees (monthly, quarterly and annual). They can really add up.

The only way to really know what you are paying for payment card transactions is to subtract from your gross sales your total cost including all the fees you are paying including discount rate, monthly, quarterly, annual and transaction fees. Plus, don't forget to include the costs associated reliability issues including your management time and lost business. Don't be surprised if you find you are paying two to three times the discount rate quoted you.


The following table reflects the fees a merchant pays releated to the discount rate. For example, if the merchant negotiates a 2.5% discount rate they would pay fees of $6,250 for each $250,000 of sales.

Discount Rate Fees
  $10,000 $50,000 $100,000 $250,000 $500,000 $1,000,000
2.0% $200 $1,000 $2,000 $5,000 $10,000 $20,000
2.5% $250 $1,250 $2,500 $6,250 $1,2500 $25,000
3.0% $300 $1,500 $3,000 $7,500 $15,000 $30,000
3.5% $350 $1,750 $3,500 $8,750 $17,500 $35,000
4.0% $400 $2,000 $4,000 $10,000 $20,000 $40,000
Transaction Processing Fees

Transaction processing fees can add up quickly even if the additional fee is only a few cents per transaction. A review of the following table reflects how a merchant�s processor fees can add up rather quickly.

Amount Lost Each Year
Number of
vendor fees per transaction
5 cents 10 cents 15 cents 20 cents
1,000 $50 $100 $150 $200
10,000 $500 $1,000 $1,500 $2,000
100,000 $5,000 $10,000 $15,000 $20,000
500,000 $25,000 $50,000 $75,000 $100,000
1,000,000 $50,000 $100,000 $150,000 $200,000

Note that "hidden fees" including monthly, quarterly and annual fees charged by both the processor and 3rd party processor can be significant. For example, a $15 monthly fee (15 x 12 = 180), plus a $50 quarterly fee (50 x 4 = 200), plus a $150 annual fee totals $530 of hidden fees (180 + 200 + 150 = 530).

Print this


  • Product Requirements
  • Elavon Setup Form
  • Elavon Account Checklist
  • Installation & User Guide
  • Buy Now

  • CFX_AIM_JAVA Product Requirements
  • Online Merchant Application
  • Installation & User Guide
  • Buy Now
       © 2017 CFXWorks Inc. All rights reserved. Sitemap |   Login | Home |   Contact | Privacy | Legal