23 August 2017

What are merchant fees? And how do you pay less of them?

credit cards

What are merchant fees? Several things fall under this umbrella:

  1. EFTPOS rental and maintenance fees
  2. Cross border transaction fees
  3. Switching fees
  4. Fraud related chargeback fees (The fees, not the actual cost of the chargebacks!)
  5. Fees incurred processing card transactions

Do you know how much you pay in merchant fees?

The share of payments made using a credit or debit card has doubled since 2007. This is especially the case when it comes to smaller purchases.

It is becoming particularly important for you to understand the implications that EFTPOS, card-mix and merchant fees have on your margins.

What is EFTPOS used for?

Don’t accept card payments? You’ve probably have had your fair share of walk outs.

Why is offering this flexibility important?

Friction in your payments will spell unhappy customers, and lost business.

Cashless payments have transitioned from trend to standard amongst Australian consumers.

EFTPOS machines let your customers make cashless payments using their debit cards, credit cards and mobile phones.

Merchant fees for credit and debit cards

With taking electronic payments, come merchant fees.

Merchant fees are the bane of every business owner’s existence. What are you doing to minimise your own?

To understand how you can increase your margins, it’s first important to understand your cost to transact.

Debit Transactions

When your customer uses their debit card to make a transaction, you get charged a flat rate.

Credit Card Transactions

Credit cards are accepted by entering into separate agreements with companies like Visa, Mastercard and American Express.

Costs vary according to individual contracts, hence the confusion that generally comes with blended rates.

Surcharging helps business owners cover their merchant fees

Businesses have found many ways to pass on the cost of accepting electronic payments to their customers. The most popular of which being surcharging.

What does surcharge mean?

“Retailers will be able to surcharge credit-card users”. This sentence breaks it down. Surcharging in this context means passing on the cost to accept credit card payments to your customer.

2016 saw the RBA knuckle down on excessive surcharging by introducing a ban on fixed dollar surcharges.

This was rolled out in two stages, and was first to hit larger organisations.

The second stage is landing and involves small businesses dropping excessive surcharging fees.

This will come into effect on the 1st September 2017.

Once this ban is enforced, the Australian Competition and Consumer Commission (ACCC) has the power to penalise businesses for overcharging.

This will mean hefty fines for non compliance.

What does this mean for you?

Is it illegal to charge a credit card surcharge? Does that mean that transaction costs come out of your pocket?

Not exactly.

You just have to get smarter about surcharging.

Many Australian businesses are covering their merchant fees.

Let’s talk about fees incurred processing card transactions

How do you work out how much you pay to process card transactions?

  1. You look at your card mix history.
  2. Then you work out how much it costs you to accept each card type over 12 months.

This number works out to the percentage surcharge you can put on transactions with that particular card type.

So that’s a different number for Visa, Mastercard – and the list goes on.

Dynamic surcharging makes the whole process idiot proof. Apply instant surcharges calculated based off your historical card data.

This keeps you RBA compliant and keeps the ACCC off your back.

You could just surcharge the same rate for multiple cards. But you shouldn’t.

The new RBA surcharging rules require you to set that number at the lowest average cost of acceptance across all schemes. Why leave money on the table?

Stay RBA compliant with clear reporting on your card mix and surcharging history

Compliance is a pain, but fundamental to your business’ continued survival and growth.

Merchants need to be able to demonstrate that their surcharging amount doesn’t exceed their cost of acceptance. Dynamic surcharging does this for you. Learn more.

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