When dealing with a Payments Gateway you will always be required to establish an online merchant facility with a Bank. This essentially means that there are two sets of fees that you should be aware of – Bank Fees & Payments Gateway Fees.

Online merchant account bank fees

All Banks generally have the same pricing structure where the only difference will be around whether they charge a high monthly cost or a low monthly cost plus an annual cost. There are a number of fees associated with an online merchant account and they are explained in detail below:

Please note that these fees are generally related to Australian Banks such as – National Australia Bank (NAB), Australia and New Zealand Banking Group (ANZ), Westpac, St. George, BankWest and Commonwealth Bank of Australia (CBA).

  • Establishment Cost (also known as Setup Fee) – This is a one time cost charged by a Bank for the establishment of an online merchant facility.
  • Annual Cost - This is an annual cost charged by a Bank for having an online merchant facility established with the Bank. Not all Banks charge this cost. Banks that do not charge this cost will charge a monthly cost. It’s important to do the calculations as sometimes one Bank’s Annual Cost plus Monthly Cost will be less than another Bank’s Monthly Cost.
  • Monthly Cost (also known as License Cost in some cases) – This is a monthly cost charged by a Bank for the service provided on the online merchant facility.
  • Merchant Service Fee (MSF) – This is a percentage (%) cost charged by a Bank per transaction. This is the most important fee that should be negotiated.
  • Minimum Monthly Merchant Service Fee – This fee is charged by a Bank only when the revenue generated by the Merchant Service Fee (%) is below a certain value. All Banks charge this fee. An example would be if the Merchant Service Fee offered to the merchant was 1%. If in a given month the merchant processes $1,000 then the revenue that the Bank will make will be (1,000 * 0.01) = $10. The Minimum Monthly Service Fee is often between $20-25. If the revenue the Bank makes from the merchant in a given month is below the $20-25 then the Bank will charge the merchant $20-25, however, if the revenue the Bank makes from the merchant is above $20-25 then the Minimum Monthly Merchant Service Fee is not charged.
  • Transaction Cost – This is a cent value (eg. $0.10) cost that is charged by the Bank per transaction. Not all Banks charge this cost and it is advised that when integrating with a Payments Gateway to find a Bank that will not charge this cost.
  • Chargeback Fee – This is a fee that is charged by a Bank ONLY when a customer issues a chargeback against the merchant.
  • Termination Fee (also known as Closure Fee and Exit Fee) – This is a fee charged by a Bank when a merchant chooses to close their online merchant facility.

Merchant service fees – Blended rate vs. Split MSF

There are two common ways a Bank will offer you a Merchant Service Fee. One is referred to as a blended rate and this is the most common rate which is offered to merchants. A blended rate is a flat rate which is offered to a merchant (eg. 1.25%) for all online credit card transactions.

Another option is a Split Merchant Service Fee which takes into consideration the number of domestic vs. the number of international/premium/corporate credit card transactions. When calculating the Split Merchant Service Fee the Bank will offer the merchant two rates:

  • Standard/Domestic Rate – This covers all standard/domestic credit card transactions.
  • International/Premium Rate – This covers all international, premium and corporate credit card transactions.

A Bank that offers a split MSF will ask the merchant to give an indication as to the number of domestic vs. international/premium/corporate credit card transactions they believe their online merchant facility will process via their Payments Gateway. As an example a merchant may have a split of 80% domestic credit card transactions and 20% international/premium/corporate credit card transactions. The Bank may then offer the merchant a domestic rate of 0.7% and an international/premium/corporate rate of 1.6%.

An example of an Australian Bank that generally offers a blended merchant service fee is Westpac and an example of an Australian bank that generally offers a split merchant service fee is the National Australia Bank (NAB).

Which of the above MSF methods (blended rate vs. split MSF) works better for a merchant depends on their online business requirements and operations.

Payments gateway fees

A Payments Gateway has its own set of fees and they are described below:

  • Setup Fee – This is a one time fee charged for the setup of a Payments Gateway account. Not all Payments Gateway Providers charge this fee and it is recommended to find a Provider that waives this cost.
  • Annual Cost – This is an annual cost charged by the Payments Gateway for the services/features/software/support offered by the Payments Gateway.
  • Transaction Cost – This is a cost charged per transaction for the processing of a transaction to the merchant’s Bank.

How can I save money?

This is the number one question that merchant’s ask whilst establishing or operating an online business. Merchant’s operating online businesses that are processing a low number of transactions and in turn low volumes should look into implementing a Processor instead of a Payments Gateway and Bank solution to begin with (Please see Payments Gateway or Processor? for further information). The capital costs (establishment costs, annual costs, monthly costs etc.) can be quite overwhelming to an online merchant that is processing a low number of transactions. These merchants may rather pay a high Merchant Service Fee (as an MSF provided by a Processor (PayPal – 2.4%) will most likely be higher than that provided by a Bank (0.8%-2%) per transaction in order to escape the capital costs associated with establishing a merchant facility.

As transaction numbers grow and volumes grow a merchant will always be better off with a Payments Gateway solution and should look into the savings that could be made by implementing such a solution.

If you require assistance understanding a quote that has been provided to you by a Bank or if you would like to discuss how you can reduce the fees that you are currently paying for your online solution, contact Merchant Warrior (07) 3166 5489.