Understanding Merchant Fees and Fee Coverage
Merchant Fees Overview
When processing transactions, fees are charged to cover payment processing and ensure secure, seamless transactions.
Breakdown of the fee structure:
1. Credit/Debit Card Transactions
- Fee: 2.99% of the transaction amount + $0.30 per transaction.
- Example:
- Transaction Amount: $100
- Fee Calculation:
- 2.99% of $100 = $2.99
- Fixed Fee = $0.30
- Total Fee: $2.99 + $0.30 = $3.29
- Net Amount Deposited: $100 - $3.29 = $96.71
2. ACH (Bank Account) Transactions
- Fee: Flat $0.50 per transaction, regardless of the amount.
- Example:
- Transaction Amount: $100
- Fee: $0.50
- Net Amount Deposited: $100 - $0.50 = $99.50
What Happens When Donors Choose to Cover the Fee?
When donors choose to cover the fee, they agree to pay 3% of the transaction amount (rounded up). While this covers most of the actual fee, there may still be a minor difference between the fee the donor covers and the final processing fee.
Fee Coverage Example (Credit/Debit Card)
1. Donor’s Intent: The donor wants to give $100 and chooses to cover 3% of the transaction amount.
2. System’s Calculation:
- Fee Covered by Donor:
- $100 × 3% = $3.00
- Gross Donation Amount = $100 + $3.00 = $103.00
3. Actual Fee Calculation (2.99% + $0.30):
- 2.99% of $103.00 = $3.08
- Fixed Fee = $0.30
- Total Fee = $3.08 + $0.30 = $3.38
4. Final Outcome:
- Donor pays $103.00.
- Fee deducted: $3.38.
- Net Amount Deposited: $103.00 - $3.38 = $99.62.
Fee Coverage Example (ACH Transaction)
1. Donor’s Intent: The donor wants to give $100 and chooses to cover 3% of the transaction amount.
2. System’s Calculation:
- Fee Covered by Donor:
- $100 × 3% = $3.00
- Gross Donation Amount = $100 + $3.00 = $103.00
3. Actual Fee Calculation: Flat Fee = $0.50
4. Final Outcome:
- Donor pays $103.00.
- Fee deducted: $0.50.
- Net Amount Deposited: $103.00 - $0.50 = $102.50.
Why Is There Still a Fee When Donors Cover It?
The donor’s “cover fee” selection applies a flat 3% to the transaction amount, which is slightly lower than the actual processing fee for credit/debit card transactions (2.99% + $0.30). The difference between the covered amount and the actual fee is deducted from the gross donation.
Deposit Amounts and Reconciling Fees
If you receive a deposit where the fee doesn’t match expectations:
1. Donor Chose to Cover 3% Fee:
- The 3% coverage may not fully account for the actual 2.99% + $0.30 fee.
- Example:
- Donor covers 3% = $3.00.
- Actual fee = $3.38.
- $0.38 is deducted from the donation amount.
2. ACH Transactions:
- If the donor covers 3%, this exceeds the flat $0.50 fee.
- Any excess contributes to the deposit amount.
How to Achieve an Effective Rate Under 1% with SteepleMate
With SteepleMate, you can easily achieve an effective transaction rate under 1% by encouraging your donors to give through ACH (bank account) payments. ACH transactions are charged a flat $0.50 fee, meaning donations over $50 result in an effective rate below 1%. For example, a $100 ACH donation incurs only a 0.5% effective rate. By promoting ACH for larger gifts, you can maximize savings while ensuring more of each donation directly supports your ministry.
*An “effective rate” is the average cost of processing transactions, calculated as total fees divided by total transaction volume.
Ready to optimize your giving strategy? SteepleMate makes it simple and cost-effective!
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