What is the transaction fee?
A transaction fee is an amount of charge that businesses will have to pay for each time an electronic payment is completed.
Transaction fees can be calculated based on the transfer amount or fixed in advance. And depending on particular partner payment providers, the cost of transaction fees are varied. In general, transaction fees range from £0.25 – £2.50 or account for 0.5% – 5% of each transaction.
Components of transaction fees
Generally, there are two principal set of fees that retailers will have to pay for each of their transactions, namely:
- Interchange fee
An interchange rate is the amount of money that credit card companies such as Mastercard, Visa, Discover, American Express, etc charge receiving banks each time any transaction is made using credit cards. This amount is used for supporting issuing banks to cover financial issues such as handling costs, risks of approving sales or fraudulent transactions in some cases. Interchange fee commonly accounts for a small portion of each transaction and is combined with an additional charge. The exact figure depends on the number of factors included, types of credit cards, credit card owners, the value of transactions, etc.
- Merchant service provider fee
Merchant service providers are companies that provide retailers the ability to accept every credit or debit card transaction as well as other alternative payment methods. These companies charge a small amount of money on top of the interchange fee, which is calculated based on the volume of transactions and type of businesses.
Foreign transactions fee
This type of transaction fee is changed when customers are abroad and use their card issued in another country or when customers purchase their online shopping cart which includes products from foreign vendors.