Merchant fees – are the fees fair enough bank is charging your business for card acceptance services?

Already for some time is valid EU regulation setting interchange fee maximum levels – 0,2% for debit and 0,3% for credit cards. The interchange fee is a fee paid by card accepting bank to the card issuing bank. And acquiring bank does include such fees into merchant fees. But interchange is only one cost component acquiring bank does have relevance to the service – another major component is processing fee – meaning fees to paid to different kind of service providers (including VISA, MasterCard) which enabling delivering payment information from the acquiring bank to issuing bank and ensuring that acquiring bank will receive money spent from issuing bank as well. As a practice – processing fees are transaction based fixed fees when interchange fees are volume and percentage based.

in a fact – due to EU fee transparency requirements – an acquirer bank merchant fee break-even levels can be estimated quite easily if knowing how this particular bank is operating in the area of card acquiring. There are few things to be taken into account:

– transaction processing – in house or dedicated to the service provider – in house processing is considered giving more flexibility in pricing issuing

– market share – e.g. if the bank is same time big card issuer then big part of card transactions is generated by its own cards. Meaning interchange fee is kept in the bank which increases pricing flex towards merchant fees.

In Estonia – 2016 average yearly card turnover of one merchant was 207 th Euro, 12 th transactions – making average transaction size 17 Euros.

In this particular example (Estonia) there are 5 organizations on acquiring playground – “orange” bank – with more than 50 % issuing market share, “green” bank with some 35 % market share, “danish” bank with some 4% decreasing market share, “local” bank with some 5% increasing market share and non-bank acquirer without issuing market share.

To be able to calculate merchant fee break-even line – two components are needed – turnover and nr of transactions – as merchant fee cost is consist of percentage based volume and fixed transaction based components. Higher average transaction size means lower merchant fees.

small print:

Results from given calculator will not guarantee that acquiring organizations will offer such merchant fees to their customers

Amex and rest of exotic card brands (for Estonia) are excluded

Current material and author are not taking any responsibility for business decisions made on basis of current materials

Margus Aun