In general, transactional fees fall into two categories: those charged to the end customer or consumer, and those charged to an organization or merchant, when you want to allow payment services to your customers.
Direct customer rates
Transaction fees generally apply only to direct customers or account holders of a given bank (since the bank has no direct relationship with other consumers) and even then, only when a customer has gone beyond what is consider the core business relationship that the Bank is prepared to offer at no direct cost. Therefore, fees are typically charged to customers when they have discovered an account, written a check in circumstances where there are insufficient funds to cover it, or perhaps they have used an ATM or ATM in another bank’s network. . However, even here, a bank will allow many transactions without fees, if a customer maintains a positive balance (sometimes with a minimum threshold) or agrees to pay or save regular income every month. This is because banks are very concerned about the “loss” of customers and know that fees can often be a “game changer” if they become too irritating to the account holder (especially now that it can be opened another account with a different bank online very easily in many cases). The simple logic here is that it is more profitable and profitable to keep good clients who regularly transact with a bank (and who do so mostly in black numbers) for what could be many years, than to risk losing them entirely in a lapse of time. Fair but nonetheless irritating rate that “pushes them to the limit”. But even though this results in what could be seen as a better deal for the end consumer, banks have yet to find ways to recoup their internal transaction costs and overheads in some way. For some transactions, such as bank checks, wire transfers, and transactions involving currency, a customer will be relatively happy to pay (as these are often “one-time” or special cases). However, these fees will not always cover the costs involved fully, and therefore it is often up to the other main category to provide the fees that can cover the bank’s costs and overhead – the merchant.
Merchant fees
Although each individual business relationship will be different, depending on the size of the organization, the type of business, the types of services offered, etc., banks will typically charge a wide variety of transactional fees to most merchants to provide a service. of payment.
The most obvious fees charged to merchants (because they have been around for a long time) are for handling cash and checks. In both cases, these payment transactions are costly for any financial institution because they involve human intervention (perhaps a teller at a branch or a reconciliation and settlement clerk at a central office) and, in both cases, considerable data entry. humans (sometimes carried out multiple times) is required. As with an end consumer, a merchant can achieve lower rates by maintaining a positive or “floating” balance. However, it is rare for any trader these days to be able to trade without an overdraft, at least some of the time, so fees in this area must be carefully monitored by each trader.
Outside of cash and check payments, most transaction fees charged by a commercial bank are credit and debit card usage fees. Cards are typically issued to a consumer at no charge and no transaction fees when paid regularly each month. However, a merchant will be charged for every transaction a customer makes with a credit and / or debit card and this can be a very complex matter. In some cases, the fee charged will be a one-time “added fee” for, for example, credit card use, such as 2.5% of the transaction size. Therefore, for a purchase of 100 consumers, a 2.50 charge will be made to a merchant. However, this fee can vary from transaction to transaction and this is because the aggregate fee is made up of many secondary fees that every merchant should be aware of. These are just a few of the types of fees that are typically charged:
Discount rate rate
Credit and debit card companies (Visa and MasterCard are by far the largest) have what are called “interchange” fees. These can vary in price, so to make things easier, commercial banks often have sub-categories. These include fees such as the Qualified Discount Rate – a pre-set or agreed percentage is paid for each pound charged or the Unqualified Fee, a fee that is added to the Qualified Discount Rate on certain transactions. For example, this can occur if a merchant does not use an Address Verification Service (AVS) when entering or accepting a transaction manually.
Transaction fees
This is a specific flat fee (like 5 or 10 cents) that is paid on each sale processed through the particular credit card processor. The transaction fee is sometimes called the interchange fee, authorization fee, or inquiry fee.
Address verification service (AVS) fees
Commercial banks charge a small fee for the validation service to ensure that the customer’s billing address provided in, for example, an online payment process matches the records of the card issuing bank. Failure to use this service can sometimes result in card processing fees for that sale.
Return / recovery charges
When a customer requests a refund (or the customer’s credit card issuer requests a refund), commercial banks generally charge a “chargeback” fee. Typically this can range from £ 10 to £ 30. This can add up quickly when chargebacks may not be handled carefully.
Lot fees
Commercial banks often require client organizations to complete or “close” their transactions at least once a day. The batch fee pays for the costs of the “gateway” or software that accesses the credit card processing network. If a merchant has no transactions to process, there is of course no batch fee to pay.
Monthly statement or customer service charge
Most commercial banks charge a monthly fee to cover their estimated monthly operating costs for a given merchant (by paying their customer service team, for example).
Minimum monthly fee
Many commercial banks require a certain organization to process a minimum amount of sales per month or pay a minimum monthly. Monthly lows tend to range from 15 to 50 per month.
Processing or gateway fees
There are fees for Internet and mail order merchants to use an Internet gateway service, although some commercial banks will cover this fee on behalf of their customers as part of the package.
Annual fees
These are usually charged by commercial banks when free terminal equipment is offered to receive payments (such as portable card cleaning machines or PDQs).
Cancellation / termination fees
Most business accounts require a one or two year contract agreement and if a merchant cancels early they will likely be charged a cancellation fee.
Summary
Banks now make a large proportion of their profits by charging fees to both end consumers and account holders (although they are concerned about overdoing it to avoid “losing” customers) and merchants who want to offer payment services to their customers. In the latter, there are many direct and indirect fees in the mix that need to be closely scrutinized as they can make the cost of providing a product or service much more expensive than organizations think (up to 5% of revenue as we suggested in a previous blog post). However, with the rise of the internet and many more options are now available to the merchant, the fee landscape for the particular merchant is rapidly changing and it is possible for a merchant to get more value for their fee spend (especially since reaching better understand the different transaction fees that may be charged). In the next article, therefore, we will see whether merchant fees on payment transactions are likely to change in the coming years (and we predict that they will certainly change considerably).
