What are 'Per Transaction Fees'

A per transaction fee is an expense a business must pay each time it processes an electronic payment for a customer transaction. Per transaction fees vary across service providers, typically costing merchants from 0.5% to 5.0% of the transaction amount plus $0.20 to $0.30 per transaction. If a customer charges $100, the merchant’s fee to process the transaction might be as little as $0.70 or as high as $5.30.

BREAKING DOWN 'Per Transaction Fees'

Per transaction fees are required of the merchant from a few different entities in a transaction. Merchants partner with merchant acquiring banks to facilitate all of the communications in an electronic payment transaction. Merchants also setup a merchant account with the acquirer which serves as the merchant’s primary deposit account for funds from each transaction. A merchant who receives a lot of electronic payments will rely heavily on the merchant acquiring bank, making the terms of the merchant account agreement an important factor for a merchant.

Comprehensive Fees

Merchants pay a variety of fees pertaining to the acceptance of electronic payments. Some fees will vary while others are fixed. Merchants have a wide range of acquiring banks they can partner with for electronic payment services. Each acquirer has different fee structures and service capabilities allowing merchants to choose the acquirer that is best for them. Acquirers will typically charge per transaction fees as well as a monthly fee for the management of a merchant account.

A second component of a per transaction fee is the fee paid to the network processing company. Merchants establish the types of branded cards they can accept at their store based on the processing network of their merchant acquiring bank. Payment card companies such as MasterCard, Visa, Discover or American Express each have their own per transaction fees that will be charged to the merchant in a transaction. Payment card company fees, also called wholesale fees, are usually a fixed fee per transaction. Some acquirers may be able to negotiate lower wholesale fees through network relationships with processors.

Acquirer and processor fees are the main components of a comprehensive per transaction fee. In some cases other fees for a merchant may also apply. One added cost merchants may encounter is a terminal fee which is a per transaction fee charged to a terminal provider such as Square for the use of a terminal in an electronic payment card transaction.

Per transaction fees are the reason why some merchants impose a minimum that customers must spend if they want to pay with a credit or debit card. It doesn’t make sense for a merchant to let a customer charge 50 cents to a payment card when they will pay 30 cents to process the transaction. It’s common, and perfectly permissible, for merchants to set a $5 or $10 minimum for credit card and debit card transactions. Smaller merchants who are less able to absorb excess card fees are more likely to impose these minimums.

Merchant Account Statements

Acquirers will detail a merchant’s total monthly costs and transaction activities in a monthly statement. Generally, service provider transaction fees will be delineated in one of three categories: interchange plus, tiered or subscription. The interchange plus structure lists the payment card company fees and service provider fees separately on the merchant’s monthly statement. The tiered structure assesses different fees based on the transaction type, such as in person versus online. Subscription fees are also assessed on a monthly or annual basis.

RELATED TERMS
  1. Merchant Discount Rate

    The merchant discount rate is the rate charged to a merchant ...
  2. Acquirer

    An acquirer is a company that acquires rights to another company ...
  3. Credit Card Authentication

    Credit card authentication is the process of confirming a customer’s ...
  4. Convenience Fee

    A convenience fee is a fee assessed by a payee when a consumer ...
  5. Merchant Bank

    A merchant bank is a bank that deals mostly in (but is not limited ...
  6. Payment Gateway

    A payment gateway refers to the front-end technology that reads ...
Related Articles
  1. Tech

    How Much Cheaper are Bitcoin Fees than Credit Card Fees?

    Bitcoin transaction fees are starting to rise as the network gets backlogged due to more usage, but are still much lower than typical credit card fees.
  2. Personal Finance

    The Truth About Credit Card Swipe Fees

    Swipe fee legislation will only have a small effect on profit margins for merchants and little to no effect on prices.
  3. Tech

    Bitcoin Transactions Vs. Credit Card Transactions

    We provide an overview of the differences between bitcoin and credit card transactions, and the advantages of using one over the other.
  4. Personal Finance

    WePay vs. PayPal Fees

    WePay and Paypal facilitate payments between businesses and people. Which one should you go with?
  5. Personal Finance

    The Ins and Outs of Bank Fees

    These service charges could nickel-and-dime you right out of your nest egg.
  6. Investing

    8 Investing Fees That You Should Never Pay

    In investment management and financial planning there are a plethora of fees that are unnecessary.
  7. Investing

    Why PayPal Can Take on Amazon In Digital Payments

    Amazon wants more of the digital payments market, but PayPal has its advantages.
  8. Personal Finance

    Which Are The Best Credit Cards To Take To China? (DFS)

    Credit cards are now much more widely accepted in China – and one issuer leads the pack, due to its deal with China UnionPay, the Chinese bankcard network.
  9. Investing

    Everything You Know About Investor Fees

    Investment fees are one of the main determinants of investment returns, and over time, minimizing fees tends to maximize performance. Use this guide today.
  10. Personal Finance

    Do You Know How Your Financial Advisor Is Paid?

    It is important to understand how your financial planner is compensated.
RELATED FAQS
  1. What is the difference between investment banks and merchant banks?

    Merchant banks and investment banks, in their purest forms, are different kinds of financial institutions that perform different ... Read Answer >>
  2. What kinds of fees are involved in futures trading?

    Learn what the various costs are that are charged by brokerage firms and trading exchanges to individual futures trading ... Read Answer >>
Trading Center