In keeping with the steady flow of fee increases from the card brands, MasterCard has (very) quietly announced it will begin charging businesses an annual “merchant location fee.”
This article has been updated several times, and it will continue to be updated as the dust settles on MasterCard's new location fee.
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- What is a Merchant Location Fee?
- When will I be charged the Merchant Location Fee?
- How much is the MasterCard Merchant Location Fee?
- How are Processors Charging the Merchant Location Fee?
- How are Processors Charging the Merchant Location Fee?
- Mastercard Throws Processors a Curve Ball
- MasterCard Updates Billing Scheme and Clarifies Terms for the Location Fee
What is a Merchant Location Fee?
A Merchant Location Fee is an assessment fee imposed by Mastercard for each business location that accepts its cards. The fee is charged to processors, who may in turn charge your business.
As is typical with card brand assessment fees, the merchant location fee will be lower for payment facilitators (such as Square and PayPal Here) than for traditional acquiring institutions. MasterCard is charging payment facilitators $3 annually per merchant location while traditional acquirers have to fork over $15 per location. The actual cost your processor charges you could vary.
- This new fee is assessed directly by MasterCard. It is not being assessed by payment providers, although it’s likely that some payment providers will pass along the fee and may charge businesses more than the actual amount of the fee.
- As the name implies, MasterCard’s merchant location fee will be assessed based on the number of locations a business (merchant) has.
Early information about the location fee indicated that it will be assessed based on the number of locations a business has at the end of the fourth quarter in 2016. However, this doesn’t seem quite accurate because some processors have already begun charging the fee as early as the August 2016 statement cycle.
For example, the statement snippet below is taken from an August 2016 statement:
It’s unclear if or how payment providers that have already charged the location fee will correct any discrepancy in the number of merchant locations between August and December 31st. It’s also unclear if these processors are charging already because MasterCard has rolled out the fee sooner than anticipated, or if they’re doing it on their own.
Unlike interchange charges, the card brands post very little information about the assessments they charge, so it’s no surprise that MasterCard has been very covert with its new merchant location fee. We contacted MasterCard for clarification, but were simply told to "contact our acquiring bank" for details.
When will I be charged the Merchant Location Fee?
Some businesses already saw the merchant location fee in 2016, while other payment providers have stated they will begin charging businesses for the MasterCard location fee in early 2017 - Presumably, after the actual number of business locations is calculated.
As with all processing fees, it’s generally up to the payment provider how or if it will pass the cost of the merchant location fee on to businesses, and the charge can be manipulated on a per-businesses basis. Processors could choose to impose higher costs than the actual merchant location fee. Businesses that don’t have the security of a company like CardFellow to monitor their charges and ensure that fees are charged correctly should keep a close eye on statements to ensure the location fee is being passed at true cost.
How much is the MasterCard Merchant Location Fee?
At wholesale, the fee is $15 per location annually for traditional processors and $3 per location annually for payment faciliators like Square. However, what your processing company charges you will vary.
Shortly after this article was published we received a statement from a larger payment provider showing MasterCard's merchant location fee as a $2.50 monthly charge. This merchant had one location, so the $2.50 monthly charge amounts to a $30 annual fee -- $15 more than the actual cost of $15. It appears it hasn't taken payment providers very long to inflate the cost of the merchant location fee.
How are Processors Charging the Merchant Location Fee?
We've seen enough statements from different merchant service providers at this point to know there's little consistency in how the cost of MasterCard's Merchant Location Fee will be passed along to businesses.
As I've outlined below, we've seen it passed as a bi-annual fee of $7.50 by one processor and a monthly charge of $2.50 by another. Exactly how the cost is passed is largely up to the independent sales organization.
The varying scope of the expense associated with the merchant location fee is another prime example that all aspects of processing cost must be considered in order to secure the most competitive credit card processing fees, which is a task CardFellow's instant quotes and cost estimates make very easy.
Below are a few examples along with statement snippets of how the merchant location fee is showing up on processing statements.
We've seen many First Data statements where the location fee is being passed as $7.50, which we assume is a bi-annual charge. This fee was assessed in the November, 2016 processing period.
The following Vantiv statements shows the location fee as a monthly charge of $2.50.
Sage Payment Processing
The following Sage Payments statements shows the location fee as a monthly charge of $1.25.
Mastercard Throws Processors a Curve Ball
As it turns out, there’s a very good reason for payment providers to charge varying amounts for the merchant location, and it’s a bit self-serving on the part of MasterCard.
The cost of the merchant location fee is not pro-rated. Meaning, if a business has an active account with a payment provider for only one month out of the year, that payment provider must still pay Mastercard the full $15 location fee.
If the payment provider charges the location fee annually it’s unlikely to have collected $15 from the business, even though it had to fork over $15 to MasterCard. This situation leaves the payment provider at a $15 loss.
On the other hand, Mastercard double-dips on businesses that change payment providers during the course of a year.
For this reason, many payment providers have opted to charge the merchant location fee on a monthly basis and to charge more than the actual amount of the fee to protect from losses.
For example, a payment provider may choose to charge $3/month for the location fee. This equals an annual charge of $36, which is $21 more than the actual cost of the fee if the business stays with the provider the entire year.
However, if the business leaves the provider only 2 months into the year, the payment provider will have charged $6 while it owes MasterCard $15. This scenario results in a $9 loss.
It’s not ideal, but Mastercard’s poor handling of the location fee has left payment providers in a tough spot, and businesses are the ones that end up paying the price.
MasterCard Updates Billing Scheme and Clarifies Terms for the Location Fee
MasterCard seems to have realized the issue with assessing its location fee to payment providers annually, so it has made some updates that should help to alleviate the issue, for now. It has also provided clarification on some key terms and points relating to the location fee.
The issue outlined above remains with payment providers shouldering a loss from a merchant that switches to another provider, but the impact has been lessened to a certain degree now that MasterCard has apparently switching billing to quarterly, as described below.
- Billing will be completed quarterly for the first quarter of 2017.
- A Merchant Location is defined as each separate business site (physical or virtual) that accepts MasterCard payments for goods, services, products, or charitable giving.
- Only active merchant locations will be assessed a location fee. An active Location is defined as one that has accepted a MasterCard transaction of at least $0.01 between the 1st and the last day of the month.
- The location fee is not applicable to Puerto Rico or Virgin Islands.