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HOW MERCHANT PROCESSING FEES WORK AND WHO SHARES IN THE POT?
It’s not as simple as one might think. Merchants (you) pay a single, calculated fee for every bank card (credit and debit) transaction. However, several layers of “takers” combine to determine what that fee is.
The processing fee is divided into three layers: Interchange, Assessment, and Processor Fee. And within each might be sub- layers. Let’s take a look:
• Interchange fee. The interchange
fee represents about 70% of the total processing fee and gets paid to the bank that issues the card to the customer. Interchange rates are non-negotiable and determined by Interchange tables published by the major card brands – Visa, MasterCard, Discover, American Express, Interac, THE EXCHANGE, and UnionPay.
• Assessment fee. The assessment fee represents about 4%-6% of fees. Merchants pay them directly to the bank card networks (see list above) enabling the merchant to accept bank cards. The Assessment fee is non-negotiable and cannot be marked up. The fee is based on a percentage and is clearly labeled as
NGCOA Canada’s discount rate is set at only 0.05% which means that NGCOA Canada members using the Moneris program will have a discount fee of closer to 3% of the total cost, as opposed to the up to 25% noted in the article.
In 2023, NGCOA Canada members processed
$1.6 Billion with Moneris! It is this incredible level of volume that has given NGCOA Canada the opportunity to negotiate such aggressive processing fees. One of the many benefits of the Moneris program, is that these rates are locked in, and will not go up for the entire length of the contract. Allowing operators to rest easy; knowing that they do not have to worry about a low aggressive introductory rate which will eventually skyrocket on them.
“Assessments” on the monthly statement within the interchange section. It’s important to note that neither the Interchange fee nor the Assessment fee can be marked up in a statement to appear as fees collected by the card brands. Any direct interchange or assessment markups must be reported to the card brands immediately. For a list of inter- changeandassessmentfees,see resources at the end of this article.
• Processor Fee. Also known as the “discount rate” (a somewhat misplaced moniker), these fees are the only negotiable, amounting to up to 25% of the total costs. The merchant bank and/or GMS integrators sign up the merchants and set the pricing for the “discount rate,” a markup of every transaction comprised of basis points and potentially cents per transaction. If you are paying additional cents per transaction, it is often called “cost-plus” pricing and could run anywhere from $0.03-$0.30 per transaction and 5-150 basis points (a basis point is one-hundredth of one
percent). Understanding the position of the company you are dealing with will help you negotiate the best possible rate for your business.
The merchant bank debits the discount rate directly from the merchant’s account and is the entity responsible for funding the merchant within 48 hours of the transaction.
Processor fees can be marked up by the merchant bank / ISO / PayFac on the statements and are often disguised as pass-through fees to the merchant.
Also, the bankcard processing platforms assess fees that amount to 5%-9% of the total fees, as well as a monthly database fee and/or statement fee (often marked up by the merchant bank), and a PCI- compliance fee for PoS transactions not captured by certified bank card terminals.
The merchant banks share their discount rate revenues with whichever entity is responsible for bringing them the merchant customer under one of three possible relationships.
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