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Merchant Service Fee Explained

When assessing your overheads as a small business owner, you will likely notice how merchant service fees can quickly add up and cost you more than you initially expected. This is a common reality for many small businesses across New Zealand, with stories of local pubs paying up to $300 monthly in merchant service fees. 

People discussing an EFTPOS contract

But what are merchant service fees, and how can you reduce their overall cost? In this guide, we talk you through the ins and outs of merchant service fees so you can feel confident when handling this business expense.

What is a Merchant Service Fee?

A Merchant Service Fee (MSF) is charged by your bank whenever you accept a credit card or contactless payment transaction. Merchant service fees are paid to your acquirer and card scheme’s costs when processing these specific transaction types.

Acquirers (mostly banks) charge your business merchant service fees as a percentage of the total transaction value. The exact percentage depends on several factors, such as the type of card used or your payment processor.

Notably, merchant service fees are not charged on all transaction types. If your customer chooses to insert or swipe their debit card and select either CHQ or SAV, then no additional charges will be applied. These transactions are covered by a fixed monthly fee paid to the payment network (Worldline).

When are Merchant Service Fees Charged?

Merchant service fees are charged to your account whenever the following are processed through your merchant facility: 

  • Any credit card transactions
  • Contactless debit card transactions
  • Online card transactions
  • Mobile payments through Google Pay, Apple Pay 

Your bank will bill the total amount of your merchant service fee monthly, typically on a set day. For example, a bank will bill a business the merchant service fee for the prior month’s transactions on the 15th of every month. If the 15th is on a weekend or public holiday, the fee will be charged on the subsequent business day. 

How are Merchant Service Fees Calculated?

Interchange Fee

This is the generally the largest potion of the merchant service fee and a variable fee. Interchange fees are paid by your bank to the customer’s card issuer. Several factors determine the costs of this fee, including what card type customers use, whether or not they are internationally issued cards, and how those cards were processed (swiped, inserted or contactless payments).

Scheme Fee

A fee paid directly to the card scheme (MasterCard, Visa, UnionPay, Amex etc.), the scheme fee varies based on several factors. This includes the scheme, the country the card was issued in, the card type, and the transaction value processed.

Transaction Fee

Charged by the network provider that your terminal connects to, transaction fees are usually a fixed cost. Due to this, the lower your average sale price is, the greater the impact this fee will have on your overall network fee.  

Acquirer Margin or Fee

This fee covers the acquiring bank’s operating costs and provision of settlement services. It will also include a margin to help cover these services of fraud prevention, merchant support and authorisations.

How Do Merchant Service Fees Impact Your Business?

When considering the rising popularity of contactless and credit card transactions in New Zealand, there is no doubt that many businesses are facing growing overheads due to their merchant service fees. 

In fact, the total billings for credit card spending in New Zealand has risen from $2.5 billion in 2010 to nearly $4.5 billion in 2022, with no indication of declining. Meanwhile, a study from Statista found that contactless payments made up a 39% share of transactions at point of sale in New Zealand during 2020, a 12% increase compared to the previous year. 

Consequently, as New Zealand consumers adopt more of these payment types, small businesses could be facing unpredictability in their future monthly merchant service fees.

Fortunately, there are solutions in place to effectively manage your merchant service fees.

1. Negotiate a Better Deal with Your Merchant Services Provider

Depending on the size of your business and payment volume, you may have some negotiating power with your merchant service provider to secure a better fee structure. It’s important to note that there are other options available.

So if you feel that your current provider is not meeting your expectations, take the time to research other providers who may offer better services.

2. Surcharging

Surcharging involves passing on the cost of acceptance from to your customers. This solution effectively allows you to recover the cost of the merchant service fee and will save your business thousands of dollars in the long run. 

A surcharge is a growing and legal business practice that helps small businesses continue providing flexible payment options for their customers while keeping their costs low. If you’re worried about how customers will react to surcharging, check out our guide on effective surcharge implementation here.

Save on Transaction Costs with Smartpay

Smartpay EFTPOS terminals allow for surcharging, helping your business recover expenses incurred from accepting credit card and contactless transactions. Once you have activated payWave and credit card payments through your merchant facility, we can set up surcharging for you. Simply select a chosen percentage (in line with your cost of acceptance) which we remotely program into your terminal, and your Smartpay EFTPOS machine will automatically apply the surcharge to all relevant transactions. 

While some terminal providers charge additional fees for this service, Smartpay enables surcharging for free, helping you add even more to your bottom line. 

So why end up paying thousands of dollars in merchant service fees? Contact our Smartpay EFTPOS specialists today for information on our machine and how we can help your small business. 

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