Merchant fees: clear as mud

The debate and controversy around interchange fees seems to have existed almost as long as card payments themselves, and these latest concerns from the British Retail Consortium (BRC) reflect a global trend to reduce interchange fees which has already been implemented in the US and Australia.

However, one point that the article did not mention is that interchange makes up only part of the Merchant Service Charge (MSC).  It also includes many more costs, from servicing fees through to hardware rental and phone support, which the acquiring banks incur in running the merchant account.

Of course, the servicing fees applied to an account vary depending on the size of the merchant, but smaller retailers generally find that the benefits associated with accepting card payments outweigh the costs. Whilst all reasonable businesses will understand that nothing can come for free, as acquirers ‘bundle’ these charges it can be difficult to work out what you’re getting for your money. This can lead to the irritation felt by the likes of the BRC and its members.

Some innovative banks around the world are already starting to break down these fees into their component costs, enabling a greater level of transparency and allowing merchants to see exactly what they are paying for each part of the service.

Those acquiring banks that can improve the level of transparency around fees and charges for their merchants will ensure that both parties are better placed to engage in reasonable negotiations to get what both parties feel is a fair deal on overall the merchant service charge. This can only strengthen the relationship between acquiring banks and the merchants who will ultimately have more visibility of the added value that an acquirer provides, ensuring the bank’s continued prosperity in the global acquiring industry.