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Payment Processing Fees

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedMar 20232 min read

Whether you operate in the digital or physical space, you need to make transactions accessible and frictionless for customers. Inevitably, that means accepting credit and debit card transactions. These may be either Card Present (CP) or Card Not Present (CNP) transactions, depending on whether the customer needs to have the physical card with them for the transaction. In some cases, this may also mean taking payments from overseas.

While this creates convenience for the customer and expands your reach, it also results in your company incurring a range of payment processing fees. These need to be factored into your cash flow to ensure accurate financial reporting.

Here, we’ll look at the different payment processing fees (also known as merchant discount rates) that merchants are likely to encounter, and how they can be mitigated to prevent them from eating away at your profit margins.

Payment processing fees explained

Payment processing fees vary, depending on which company provides payment processing service, and what type of payment is used. For instance, Visa and Mastercard tend to have fairly similar processing fees (usually around 1%) while American Express tends to have much higher fees of over 3%. This is why comparatively few merchants outside of the US accept Amex.

Processing fees apply to payments that are made both online and in your physical store. They are divided between the credit card issuer, the card network, and the payment provider. They can range between 0.5% and 5% of a transaction. There are also fixed fees associated with payment processing, which is why many smaller retailers have a lower limit for credit / debit card transactions.

Card present fees

These are the fees payable when a card is physically present for a transaction. These payments may be taken using an onsite or mobile payment processing / POS system. The same fees apply whether the card is swiped, a chip and PIN combination is used, or the card is touched on a contactless reader.

Card not present fees

These fees are payable where the customer’s credit card information is used but the card is not physically present. Fees are higher for these transactions as they carry a greater degree of fraud risk.

CNP transactions may include:

Payments made via your ecommerce shopping cart
Payments settled via online invoice
Payments received through automated billing

E-wallet fees

E-wallets like Apple Pay, Google Pay, Microsoft Wallet, and Alipay are growing increasingly popular among consumers who don’t like to carry a physical wallet with them and prefer to make payments through their smartphones or electronic devices.

International transaction fees

International transaction fees are payable whenever a buyer purchases something from overseas in the seller’s local currency. These fees may be applied to travelling consumers visiting another country as well as consumers buying products from overseas online. These vary between around 1% to 3% and are imposed by the card issuer.

Unlike the above, however, these are borne by the buyer rather than the merchant.

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How to reduce payment processing fees

If left unchecked, payment processing fees can eat away at your margins over time. Here are some steps you can take to reduce payment processing fees and mitigate their effect on your cash flow:

Set lower limits for card transactions.
Negotiate fees with your card processors.
Use an address verification service for online transactions.
Batch process transactions every day. The longer you wait, the more you’ll pay in fees.
Take great care when setting up your account and terminal. Providing incorrect information will drive fees up even higher.

We Can Help

If you’re interested in finding out more about payment processing fees and how to mitigate them, then get in touch with our financial experts. Discover how GoCardless can help you with ad hoc payments or recurring payments.