Understanding the Complexity of Global Payments
So Many Fees
One of the major challenges businesses face is dealing with unclear costs and hidden fees. These hidden charges can significantly erode profit margins and make it difficult for businesses to predict expenses accurately.
Interchange Fees Interchange fees are charges paid by the merchant’s bank to the cardholder’s bank for processing card transactions. These fees can vary based on several factors, including the type of card used (debit or credit), the transaction volume, and the region where the transaction takes place. Because interchange fees are often set by card networks like Visa and MasterCard, they can be complex and difficult to decipher.
Scheme Fees Scheme fees are another layer of cost imposed by card networks for processing transactions. These fees cover the network’s costs of maintaining and operating the payment infrastructure. Like interchange fees, scheme fees can vary depending on the region, transaction type, and the specific agreement between the merchant and the payment service provider.
Other Hidden Fees Merchants may encounter various other hidden costs, such as cross-border fees, currency conversion fees, and assessment fees. These charges can accumulate quickly, adding unexpected expenses to each transaction and complicating financial planning.
Pricing Models
Two main pricing models were discussed: blended rates and interchange++ (IC++) pricing. Blended rates offer a fixed percentage for all transactions, providing predictability, especially for smaller merchants. Interchange++ pricing, however, passes through all interchange and scheme fees directly to the merchant, with the acquirer’s margin clearly stated. This model benefits merchants by offering optimized costs for each transaction.
The Impact of PSD2
The Payment Services Directive 2 (PSD2) in Europe mandates that acquirers provide transparent reports on the margins generated, even if they offer a blended rate. Additionally, merchants can request interchange++ pricing if needed. This regulation ensures greater transparency and fairness in payment processing costs.
The Importance of Transparency in Payment Processing
Payment processing transparency is crucial for businesses to manage costs. Having a clear understanding of all fees involved in each transaction enables businesses to identify and plan for hidden costs. By working with payment providers that offer detailed reporting and clear fee structures, merchants can gain more control over their expenses.
Optimising Payment Setups
Optimisation strategies can significantly impact cost efficiency. Hedi emphasised the importance of payment orchestration, which involves intelligent routing of transactions to the most efficient payment service providers. “As businesses expand globally, it’s crucial to streamline payment processes and ensure transactions are handled efficiently. Payment orchestration allows merchants to leverage multiple providers and routing options, reducing costs and increasing transaction success rates,” said Hedy Hayouni.
Addressing Fraud and Chargebacks
Managing fraud and chargebacks is crucial for maintaining profitability. Implementing 3D Secure (3DS) and tokenisation can help reduce fraud-related costs. Tokenisation, in particular, allows for a longer, more secure relationship with consumers by storing card details safely for recurring transactions.
Hidden Costs and Optimisation
The costs of not optimising cross-border payments can be significant. For example, a French merchant working with a European acquirer that isn’t a local card acquirer in the APAC region could be paying up to twice as much as the necessary costs. By switching to a multi-regional acquirer, they could significantly reduce costs and improve acceptance rates.