Bank Commission Fees and Regulation
If you are not a merchant, and you regularly pay for your purchases by credit card, you may have already wondered why some merchants do not accept this means of payment below a certain amount. If you’re a merchant, you know it’s because of bank commission fees.
What are these fees ?
Indeed, when a customer pays by card an amount of 50€ for example, the merchant will not receive the full amount in the end. The commission paid by the merchant on each transaction is the sum of the following 3 fees:
- Interchange Fee, which is paid by the acquirer (the merchant in the end) to the issuer bank.
- Scheme Fee, which is paid to the card networks. They are set up by the schemes themselves and can be reviewed on a regular basis.
- Acquirer Fee, which is paid to the merchant’s acquirer. Again, it is set by the acquirer at its own discretion.
Some will wonder : For what purpose do merchants pay these fees ?
The answer is quite simple, it helps finance the system and bear the costs related to risks for consumer banks, such as insurance in case of fraud or the issuing of payment cards, and the costs related to the maintenance of payment terminals, among others, for merchant banks.
And although merchants have to pay these commissions, this system provides them with many benefits such as the guarantee to be paid in case of fraud or the reduction of checkout time, resulting in more sales.
The interchange fee is the most important part of the different commissions. In Europe, even though they are paid to the issuing bank, they are defined by the IFR (Interchange Fee Regulation).
In Europe, the interchange has been capped by the European Commission. The fees are 0,20% for immediate debit cards, 0,30% for credit cards (or deferred debit cards) and 0,90% for commercial cards. In other countries out of the European Union, these fees are higher and can reach 1,5% or more.
If a non-European person pays in Europe in a physical store, these reduced fees apply. But in e-commerce, they do not.
By understanding these different factors, it is possible for merchants to optimize the process and reduce costs. With this in mind, it is often preferable to use a local acquirer for transactions, as merchants are then subject to local rules and can benefit from lower fees.
Interchange++ and Blended Pricing
Several billing models exist on the market including interchange++ and blended pricing.
Interchange++ is a pricing model that adjusts to interchange rates. With this pricing, if the interchange rate decreases, the savings are passed on to the merchant.
As said before, on June 9, 2016, the latest set of Interchange Fee Regulation rules came into effect and guarantees merchants the following right :
This pricing system is therefore transparent. Today, banks have the obligation to inform merchants about the interchange fee, the scheme fee and the margin achieved. However, if the system is transparent, it is no less complicated to understand, and one can quickly get lost in it.
Interchange++ is not necessarily recommended for all merchants, especially those who regularly accept premium card payments or cross-border transactions. These types of transactions will have a higher cost.
Another pricing option is blended pricing, which is easier to understand. Where Interchange++ treats each commission separately, the blended pricing combines the different commissions into one, and each transaction is charged at the same price regardless of how the transaction was made.
The two pricing have benefits and it all depends on if merchants have, or not, many unsecure transactions.
Indeed, the best choice for a merchant with many unsecure transactions is blending pricing because the risk is put on the acquirer, and the merchant will always pay the same price for each transaction. If it’s not the case, the merchant better choose the interchange++, if it’s possible.
As a french company operating in several european countries, we can adapt and offer the merchants the pricing they want.
And as said in previous articles, we are always keen to advise our customers as well as possible and to propose them the solutions most adapted to their needs.
Our teams remain attentive to the different evolutions of the market and we will continue to inform our customers accordingly.
