Guide to payment processing fees
By Mariana Almeida Marques
When customers make payments, whether online or in-person, they don’t pay any direct fees to the merchant or their bank. However, payments processing actually incurs a wide range of costs for merchants, so it is important to be aware of them. In this article, we provide a breakdown of the main fees involved in payment processing.
Every payment that uses a card network (like Visa, Mastercard, Discover, or Amex) will involve an interchange fee. Interchange fees cover the costs of payment processing for the issuing bank, processor, gateway, card network, and acquiring bank (or merchant’s bank). They are paid by the merchant on a per-transaction basis. Though there are a lot of payment players involved in this fee, merchants often only see a single interchange fee being taken out of each transaction.
The interchange fee varies based on various factors, including changing interest rates, how risky the transaction is, or simply depending on the card network or country. They can go from 0.2% to 2% of each transaction. Other matters that may influence how the interchange fee is calculated are:
CNP vs CP transactions
Card-Present transactions (meaning payments initiated at a Point-of-Sale, physical shop) usually have less risk of fraud, and therefore have lower interchange rates than CNP transactions (any online payment where the card is not physically present).
Commercial vs Personal cards
Business debit or credit cards often come with higher interchange rates than personal/individual cards. This doesn’t affect the card owner, only the merchant who is charged a higher fee.
National vs Cross-border transactions
Domestic A2A payments are those where both the issuing bank and acquiring bank are based in the same country. For example, if you are a UK resident purchasing from a UK-based business, this is considered a domestic transaction. Domestic payments are usually cheaper than international payments and incur smaller interchange fees.
Card networks are responsible for updating this fee, and they are non-negotiable. Visa and Mastercard, for instance, update their interchange fees twice a year, in April and October, and these changes are public and easily accessible. American Express, on the other hand, doesn’t publish its fees online. Issuing and acquiring banks have no control over the interchange fee- this matter is solely the responsibility of card networks.
Assessment fees are paid directly to the card networks. They are charged on the merchant’s total monthly sales done through each card network. For instance, Amex would charge a set percentage of the merchant’s monthly sales done with Amex cards. The current assessment fees for all card networks range between 0.13% and 0.15%, though these numbers may be updated at any time.
Payment processing fees
In addition to the interchange and assessment fees, payment processors also charge their own fees for processing payments. These fees cover the costs of running and updating software, technical support, operations, and billing, amongst many others. These fees may vary widely depending on the processor merchants choose, as well as the added services and functionalities they offer. Some added functionalities could be reporting analytics, 24/7 technical support, and acceptance of a wider range of payment methods. The fee may also vary depending on the size of the business and the volume of payments that need to be processed.
Merchant account fees
Every business needs a merchant account to receive payments. Essentially, a merchant account is a business bank account that enables merchants to take payments from customers, as this can’t be done with a regular individual bank account. Businesses can apply for a merchant account with any acquiring bank. The merchant acquiring bank usually charges a per-transaction fee to the merchants. Alongside the per-transaction fee, acquiring banks may also request a fixed monthly fee to cover potential risks with payments, as well as the daily operational costs of settling payments.
Imburse is a cloud-based middleware connecting large enterprises to the payments ecosystem, regardless of their existing IT infrastructure. Through a single connection to Imburse, enterprises can collect or pay out using a variety of payment technologies and providers around the globe.
In a world where consumers payment preferences and technologies are ever-evolving, Imburse works with insurers to future-proof their payment requirements. Regardless of the business area, market, or requirements, Imburse will connect you to your choice of technology and provider.
Reach out to our team below should you want to discuss how Imburse can help you. Our team is happy to show you what our platform can do for your business and offer you a free demo.