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What Are Transaction and 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

Any business should be aware of transaction fees and how these can impact trade. Put simply, these are charges that are incurred by the client when an international electronic payment is made. These fees are calculated as a proportion of the total transfers fulfilled and represent an additional payment for the purchases that the merchant has already made.

There are many factors to consider when it comes to payment processing fees, so read this comprehensive article to get a better understanding of how they work and how they can affect your business.

How much should you expect to pay for transaction fees?

It’s difficult to say exactly how much a given transaction fee will be as there are many variables. However, as a rough guide, most transaction fees tend to be around 3% of the total purchase cost. While this doesn’t sound like much, they can quickly add up, especially when you’re making a lot of purchases or paying large amounts.

The amount of the payment gateway processing fees that will be charged to a merchant depends on various different factors. These include the risk of the transaction, the type of card used (such as a reward card, business card, corporate card, etc.) and the pricing model implemented by the payment processors.

What different payment processing fees do merchants pay?

When it comes to international transactions, it’s not just payment gateway processing fees that are involved. In fact, there are a number of different fees that must be paid, including:

The network fee, which will be paid directly to the credit card issuer, such as Visa or Mastercard.
The interchange fee, which is incurred any time a customer uses a credit or debit card to make a purchase. This is paid to the card-issuing bank and covers fraud, bad debt costs, and any risk involved in the payment approval and handling costs.
The acquirer fee, which is charged by the merchant acquirer, such as PayPal. These PayPal transaction fees are incurred in exchange for authorisation, reporting and settlement of the payment.

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What are flat fees and tiered fees?

In addition to understanding the different payment processing fees involved in a transaction, it’s important to know about the distinction between flat fees and tiered fees.

Flat fees, as the name suggests, are applied in the same way to all transactions. This means that it doesn’t matter whether it’s an in-store or online purchase, and the type of card is irrelevant. These flat fees are charged as a percentage of the total transaction amount plus an additional fixed fee.

For tiered fees, the processor takes the interchange fees and groups them according to the risk level of the transaction. The three categories are (in ascending order of risk): qualified rate, mid-qualified rate, and non-qualified rate. The higher the level of risk, the higher the rate of fees incurred to cover this.

How can I avoid international transaction fees?

These payment processing fees can negatively affect business with other countries, and avoiding them is a great way to reduce international barriers. There are a few methods that can help you to avoid these costly fees:

Check the terms and conditions of your payment cards. Certain credit cards do not charge international transaction fees, and so you should aim to use these whenever you are making an international purchase.
If you don’t have a card that offers no fee international transactions, then consider applying for one.
Pay using local currency. If you make a number of transactions with the same company, for example with business partners, it could be worth opening a bank account in this country.

Being careful about these fees can help you to reduce costs in your business.

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