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A guide to bank transaction fees (direct and indirect)

In general, transaction fees fall into two categories: those charged to the end customer or consumer, and those charged to an organization or merchant, when they want to enable payment services to their customers.

Direct customer rates

Transaction fees generally apply only to the direct customers or account holders of a given bank (since the bank has no direct relationship with other consumers) and even then, only when a customer has gone above and beyond what is considered to be the main business relationship that the bank maintains. bank is prepared to offer without direct cost. Therefore, fees are typically charged to customers when they overdraw an account, write a check in circumstances where they do not have sufficient funds to cover it, or perhaps use an ATM or ATM in another bank’s network. Even here, however, a bank will allow many transactions without fees, if a customer maintains a positive balance (sometimes with a minimum threshold) or commits to paying or saving regular income each month. This is because banks are very concerned about customer “churn” and know that fees can often be a “switch factor” if they become too irritating for the account holder (especially now that you can open another account with a different bank). online very easily in many cases). The simple logic here is that it is more profitable and profitable to keep good customers who regularly transact with a bank (and do so for the most part in the black) for what could be many years, than to risk losing them entirely in a fair but nonetheless irritating fee that “pushes them over the edge”. But even though this results in what could be seen as a better deal for the end consumer, banks have yet to find ways to recoup their internal transaction costs and overhead somehow. For some transactions, such as bank checks, wire transfers, and transactions involving currency, a customer will be relatively happy to pay (since these are often “one-off” or special instances). However, these fees will not always fully cover the costs involved and therefore often falls into the other main category of providing the fees that can cover the costs and overhead of the bank: the merchant.

commercial rates

Although each individual commercial business relationship will be different, depending on the size of the organization, the type of business, the types of services offered, etc., banks will typically charge a wide range of transaction fees to most merchants for providing a service. payment.

The most obvious fees charged to merchants (because they have been around for a long time) are for handling cash and checks. In both cases, these payment transactions are costly for any financial institution because they involve human intervention (perhaps a teller at a branch or a reconciliation and settlement clerk at a central office) and, in both cases, considerable human data input ( sometimes carried out multiple times) is mandatory. As with an end consumer, a merchant can generate lower fees by maintaining a positive or “float” balance. However, it is rare for a merchant these days to be able to trade without an overdraft, at least some of the time, so all merchants should carefully monitor fees in this area.

Outside of cash and check payments, most transaction fees charged by a commercial bank are credit and debit card usage fees. The cards are typically issued to a consumer with no charge and no transaction fees when paid regularly each month. However, a merchant will be charged for every transaction a customer makes with a credit and/or debit card and this can be a very complex affair. In some cases, the fee charged will be a single “added fee” for, for example, credit card use, such as 2.5% of the transaction size. Therefore, for a purchase of 100 consumers, a charge of 2.50 will be made to a merchant. However, this fee can vary from transaction to transaction and this is because the aggregate fee is made up of many sub-fees that every merchant should be aware of. These are just some of the types of fees that are typically charged:

discount rate rate

Credit and debit card companies (Visa and MasterCard are by far the largest) have what are called “interchange” fees. These can vary in price, so to make it easier, commercial banks often have subcategories. These include fees such as the Qualifying Discount Rate – a pre-set or agreed percentage is paid for each pound loaded or the Non-Qualifying Fee – a fee that is added to the qualifying discount rate on certain transactions. For example, this can occur if a merchant does not use an Address Verification Service (AVS) when entering or performing a transaction manually.

Transaction Fees

This is a specific flat fee (such as 5 or 10 pence) that is paid on each sale processed through the particular credit card processor. The transaction fee is sometimes called the interchange fee, authorization fee, or inquiry fee.

Address Verification Service (AVS) Fees

Commercial banks charge a small fee for the validation service to ensure that the customer’s billing address provided in, for example, an online checkout process matches the records of the card-issuing bank. Failure to use this service can sometimes result in card processing fees for that sale.

Return/Recovery Fees

When a customer requests a refund (or the customer’s credit card issuer requests a refund), commercial banks often charge a “chargeback” fee. This can normally be anywhere from £10 to £30. This can add up quickly where possibly chargebacks are not managed carefully.

batch rates

Commercial banks often require customer organizations to complete or “close” their transactions at least once a day. The batch fee pays for the “gateway” or software that accesses the credit card processing network. If a merchant has no transactions to process, there is no batch fee to pay, of course.

Monthly statement or customer service fee

Most banks charge a monthly fee to cover their estimated monthly operating costs for a given merchant (paying their customer service team, for example).

minimum monthly fee

Many commercial banks require a given organization to process a minimum number of sales per month, or pay a monthly minimum. Monthly minimums tend to range from 15 to 50 per month.

Processing or gateway fees

There are fees for internet merchants and mail order to use an internet gateway service, although some commercial banks will cover this fee on behalf of their customers as part of the package.

annual dues

These are often charged by commercial banks when free terminal equipment is offered for receiving payments (such as portable card erasure machines, or PDQs).

Cancellation/Termination Fees

Most merchant accounts require a one- or two-year contract agreement and if a merchant cancels early, they will likely be charged a cancellation fee.


Banks now make a large proportion of their profits by charging fees both to end consumers or account holders (although they are concerned about going overboard to prevent “churn”) and to merchants who want to offer payment services to their customers. In the latter, there are many direct and indirect fees in the mix that need to be carefully considered, as they can make the cost of providing a product or service much more expensive than organizations think (up to 5% of the costs). income). as we suggested in a previous blog article). However, with the rise of the Internet and many more options now available to the merchant, the fee landscape for the individual merchant is changing rapidly and it is possible for a merchant to get greater value for their fee spend (especially since reaching better understand what different transaction fees may be charged). So in the next article we’ll look at whether merchant fees on payment transactions are likely to change in the coming years (and we predict they will certainly change considerably).


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