Card transaction fees: how does it work?
When a payment is made with a credit or debit card, a commission is always applied, whether the purchase is made online or in-store. The card transaction fees are then deducted directly from the merchant’s bank account by the bank or the payment service provider (PSP).
Who are the different players in the card payment chain?
Completing a transaction involves several key players, each ensuring the smooth running and security of the payment.
Here are all the players in the payment chain.
The customer
The customer is the legal entity or individual who makes the payment to complete a purchase or settle an invoice.
The merchants
These are businesses that accept card payments in-store or online.
The issuing bank
The issuer of a bank card is the bank or financial institution that makes the card available to its client.
When a transaction is initiated, the issuer receives the validation request. They verify the cardholder’s identity, check the availability of funds or the line of credit, and then authorize or decline the transaction. In the case of credit cards, the issuer directly finances the purchase, which is then reimbursed by the cardholder.
Some card networks can also act as issuers, directly granting credit to users without using an intermediary bank.
The bank card network
The bank card network, such as Visa, Mastercard or American Express, constitutes the infrastructure that enables communication between the customer’s issuing bank and the merchant’s acquiring bank. It ensures the secure transfer of payment information and ensures compliance with the rules and standards specific to each network.
In addition to providing this infrastructure, the card network defines authorization and settlement protocols, sets certain fees, and guarantees compatibility between the various players in the payment chain. Its role is essential for ensuring the smooth, secure, and reliable flow of transactions, whether in-store or online.
When a card displays both the bank’s logo and that of a network, it means that the bank is the issuer and the network provides the payment infrastructure.
The acquiring bank
The acquiring bank, or commercial bank, is the financial institution responsible for processing card payments on behalf of merchants.
It provides the distance selling contract or the payment terminal, transmits authorization requests to the networks and credits the merchant’s account once the transaction is validated.
The payment service provider
On an e-commerce website or marketplace, the payment service provider (PSP) plays a central role. It acts as a technical and financial intermediary between the customer’s issuing bank and the merchant’s acquiring bank. The PSP guarantees the secure transmission of payment data, the processing of authorizations, and compliance with security standards, including the PCI DSS standard.
In addition, the PSP can offer services such as risk and fraud management, currency conversion, recurring payment processing, and multi-channel integration (website, mobile, application). It facilitates card acceptance, simplifies accounting, and accelerates transaction settlement for online merchants.
What are the different types of card transaction fees?
Card payments are not free for businesses. They generate fees, which must be understood before processing a payment.
Interchange fee
Interchange fees constitute the main component of card transaction fees. They represent the commission paid by the merchant’s acquiring bank to the customer’s issuing bank to finance the services provided by the latter: fraud prevention, management of bad debts, and transaction validation.
The card network determines the interchange fee amount, which varies depending on the card type and geographical area. In Europe, European Regulation No. 2015/751 regulates card transaction fees for consumer payments, limiting them to 0.2% for debit or prepaid cards and 0.3% for credit cards.
Business and commercial cards are not subject to the commission cap.
Card network fees
Credit card networks, such as Visa, Mastercard or American Express, charge fees for the use of their infrastructure and services, called “scheme fees”. These fees are generally lower than interchange fees, but can vary depending on several criteria:
- The type of card used: debit, credit, personal or business
- The geographical area of the transaction: national or international
- The sales channel : online or in store
- The level of security of the transaction
Since the application of European Regulation No. 2015/751, acquiring banks must be transparent about these fees and provide merchants with a breakdown of the “scheme fees”. Some payment service providers offer a consolidated presentation to make it easier to read statements and better understand the costs applied.
Payment provider or bank fees
The payment service provider (PSP) or bank commission corresponds to the fees charged for processing transactions. It represents the PSP’s margin and covers its operational costs.
These fees are generally paid per transaction: a percentage of the amount. These fees can vary depending on the payment provider’s offerings and are often tiered based on the merchant’s transaction volume.
Secondary fees based on card type
The cost to the company varies depending on the type of card accepted. Here is a classification from least to most expensive:
- French Consumer Card (CB),
- European Consumer Card (Visa, Mastercard),
- Corporate card France (CB),
- Corporate card Europe (Visa, Mastercard),
- Consumer card outside Europe (Visa, Mastercard),
- Corporate card outside Europe (Visa, Mastercard),
- American Express card Europe,
- American Express card outside Europe.
Acquisition channel fees
Card transaction fees can also vary depending on the acquisition channel. E-commerce or marketplace sales are more expensive than brick-and-mortar sales.
Here are the main reasons:
- Two-factor authentication is required: online transactions require 3D Secure and therefore an additional authentication process.
- Higher risk of online fraud: this risk is directly reflected in card transaction fees.
- Higher rejection rate: more transactions are declined online.
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