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Guide to Credit Card Merchant Fees

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Last editedNov 20212 min read

As a business owner, it’s generally in your best interest to accept the maximum number of methods for in-person and online payments. When you offer customers their preferred method, they are more likely to make a purchase from you. However, you should also take into consideration how these different payment methods can impact your business.

Credit cards are a popular means of payment since they allow customers to spread the cost of their purchases and to ease their personal cash flow. But credit card merchant fees can be costly, particularly for small businesses. In particular, the fees incurred by credit card transactions are much more expensive than those for debit card transactions. Keep reading to find out more about credit card merchant fees in Australia.

What are credit card merchant fees?

A common question for new business owners is: “what are credit card merchant fees?”. Well, these are costs that are incurred when a merchant accepts a payment from a customer – meaning they are transaction fees that are charged by financial institutions such as banks. The fees will vary depending on the type of card that the customer uses and the network that the transaction takes place through.

There are various options available to the merchant when they accept credit card transactions. You could accept the payment and pay for this out of your own pocket, or you can pass the additional charge on to the customer. This might be done by incorporating the charge into the cost of the product, or by including it as a payment surcharge, which is an additional cost that the customer must pay when they choose a particular payment method.

Accounting for credit card merchant fees

You might feel confused about accounting for credit card merchant fees – how should they be recorded on your financial records, exactly? Above all, it’s important to remember that when the payment comes from a credit card you may not actually receive it until a slightly later date.

Do not record your credit card merchant fees as part of your sales revenue. Instead, you should list them as part of your expenses. So that means you should subtract the fees from the transaction cost and record this value as sales revenue, and record the fees as expenses.

What affects credit card merchant fees in Australia?

There are a number of different factors that play into the total cost of credit card merchant fees. For example, these include annual account fees, chargeback fees, and fees involved in PCI compliance. Particularly for Australian businesses, the real cost of accepting credit card payments can be higher than it first seems due to hidden fees and contracts, so it’s a good idea to consider carefully before deciding how to process payments.

Interchange fees are an example of a fee that may vary. They are paid by the acquiring bank (which is your account as a merchant) to the issuing bank where the customer account is held. These fees will be set by the network, and you can easily access Visa and Mastercard’s fees via their website. Interchange fees are related to risk and are therefore affected by the following factors:

  • The type of card that is used. Since debit cards require PINs, they are lower risk and therefore incur lower interchange fees than a credit card.

  • The amount that is charged. Merchants who have many small transactions may qualify for lower interchange rates.

  • The type of business, which is indicated by your merchant category code. Higher risk industries, such as gambling, travel and financial services, will result in higher interchange fees.

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