"The silent killer of digital payments

Every time a customer makes a payment using their debit or credit card, they contribute to a network of financial institutions and merchants dedicated to keeping the ecosystem of card payments running.

These transaction fees are an essential part of the cost of doing business, and they help to facilitate the smooth and efficient processing of payments.

Here is a breakdown of the primary fees:

1. Interchange Fees

• Merchants pay acquiring banks, who then pay issuing banks.
• They reimburse the issuing bank for card issuance, fraud prevention, and credit risk for approving payments.
• The rates are set by card networks (like Visa or MasterCard) and vary based on factors such as the card type, the transaction's nature (e.g., in-person or online), and the merchant's industry.

2. Assessment Fees (or Network Fees)

• The acquiring bank is charged by the card networks for each transaction.
• These fees cover the operational costs of maintaining the card network, ensuring secure and efficient transaction processing.
• The acquiring bank typically passes these fees on to the merchant.

3. Payment Processor Fees(acquirer markup)

• Merchants pay acquiring banks for their services.
• This can include transaction processing, authorization, settlement, and providing customer support.
• These fees can be a fixed amount per transaction, a percentage of the transaction value, or a combination of both, and they can vary significantly based on the merchant's industry, sales volume, and the agreement with the processor.

4. Additional Fees

• Monthly and Annual Fees: Some payment processors charge merchants monthly or annual fees for account maintenance.
• PCI Compliance Fees: To comply with the Payment Card Industry Data Security Standard (PCI DSS), merchants may face compliance-related fees.
• Terminal Fees: There may be rental or purchase costs if a merchant uses physical hardware like POS systems or card terminals.
• Chargeback Fees: When customers dispute a transaction, and it's returned to the merchant as a chargeback, administrative fees can be associated with handling the dispute.

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Example of a Transaction Fee Structure

When you make a $100 purchase with your credit card at a store, the fees charged for the transaction look like:

• Interchange Fee: 2% of the transaction value = $2.00
• Assessment Fee: 0.15% of the transaction value = $0.15
• Payment Processor Fee: 0.5% + $0.10 per transaction = $0.60
• Total Transaction Fees: $2.75

This is a simplified example. Actual fees can vary based on transaction details and merchant agreements with payment processors.        

Understanding payment processing fees is essential for merchants, start-ups, or new businesses. Negotiating rates and choosing the right service can enhance profitability.

?? Feel free to share your experiences or tips on managing transaction fees in the comments!

Thank you!

Wasim Khalil Ali