A Guide to Bank Transactional Fees (Direct and Indirect)

May 13, 2022 0 Comments

In general, transactional fees fall into two categories: those charged to the end customer or consumer, and those charged to an organization or merchant, when it wishes to enable payment services to its customers.

Direct customer rates

Transactional fees generally apply only to direct customers or account holders of a given bank (since the bank has no direct relationship with other consumers) and even then, only when a customer has gone above and beyond what is considered which is the core business relationship that the bank maintains. bank is prepared to offer at no direct cost. Therefore, fees are typically charged to customers when they overdraw an account, write a check in circumstances where they don’t have enough funds to cover it, or perhaps use an ATM or ATM in another bank’s network. However, even here, a bank will allow many transactions without fees, if a customer maintains a positive balance (sometimes with a minimum threshold) or agrees to pay or save regular income each month. This is because banks care a lot about customer “churn” and know that fees can often be a “game changer” if they become too irritating for the account holder (especially now that you can open another account with a different bank). online very easily in many cases). The simple logic here is that it is more profitable and profitable to keep good customers who regularly transact with a bank (and do so for the most part in the black) for what could be many years, than to risk losing them entirely in a fair but nonetheless irritating fare that “pushes them over the edge.” But even though this results in what could be seen as a better deal for the end consumer, banks have yet to find ways to somehow recoup their internal transaction costs and overheads. For some transactions, such as bank checks, wire transfers, and transactions involving foreign exchange, a customer will be relatively happy to pay (since these are often “one-time” or special instances). However, these fees will not always fully cover the costs involved and therefore it often falls into the other main category for providing the fees that can cover the costs and overhead of the bank: the merchant.

commercial rates

Although each individual business merchant relationship will be different, depending on the size of the organization, the type of business, the types of services offered, etc., banks will typically charge a wide variety of transactional fees to most merchants to provide a service. of payment.

The most obvious fees charged to merchants (because they’ve been around for a long time) are for handling cash and checks. In both cases, these payment transactions are costly for any financial institution because they involve human intervention (perhaps a teller at a branch or a reconciliation and settlement clerk at a central office) and in both cases considerable human data entry. (sometimes carried out multiple times) is required. As with an end consumer, a merchant can generate lower fees by maintaining a positive or “floating” balance. However, it is rare for a merchant these days to be able to operate without an overdraft, at least some of the time, so all merchants must carefully monitor fees in this area.

Outside of cash and check payments, most transaction fees charged by a commercial bank are credit and debit card usage fees. Cards are generally issued to a consumer with no charge and no transaction fees when paid regularly each month. However, a merchant will be charged for every transaction a customer makes with a credit and/or debit card and this can be a very complex matter. In some cases, the fee charged will be a single “add-on fee” for, for example, credit card usage, such as 2.5% of the transaction size. Therefore, for a purchase of 100 consumers, a merchant will be charged 2.50. However, this fee can vary from transaction to transaction and this is because the aggregate fee is made up of many sub-fees that every merchant should be aware of. These are just some of the types of fees that are typically charged:

discount fare rate

Credit and debit card companies (Visa and MasterCard are by far the largest) have what are called “interchange” fees. These can vary in price, so to make it easier, commercial banks often have subcategories. These include fees such as the Qualifying Discount Rate – a pre-set or agreed-upon percentage is paid for each pound loaded or the Non-Qualifying Fee – a fee that is added to the Qualifying Discount Rate on certain transactions. For example, this can occur if a merchant does not use an address verification service (AVS) when manually entering or making a transaction.

Transaction fees

This is a specific flat fee (such as 5 pence or 10 pence) that is paid on each sale processed through the particular credit card processor. The transaction fee is sometimes called an interchange fee, authorization fee, or inquiry fee.

Address Verification Service (AVS) Fees

Commercial banks charge a small fee for the validation service to ensure that the customer’s billing address provided in, for example, an online checkout process matches the card-issuing bank’s records. Not using this service can sometimes result in card processing fees for that sale.

Return/recovery fees

When a customer requests a refund (or the customer’s credit card issuer requests a refund), commercial banks typically charge a “chargeback” fee. This can typically range from £10 to £30. This can add up quickly when possibly chargebacks are not managed carefully.

batch fees

Commercial banks often require client organizations to complete or “close” their transactions at least once a day. The batch fee pays for the “gateway” or software that accesses the credit card processing network. If a merchant has no transactions to process, there is of course no batch fee to pay.

Monthly statement or customer service fee

Most banks charge a monthly fee to cover their estimated monthly operating costs for a given merchant (paying their customer service team, for example).

Minimum monthly fee

Many commercial banks require a certain organization to process a minimum number of sales per month, or pay a monthly minimum. Monthly lows tend to range from 15 to 50 per month.

Processing or gateway fees

There are fees for Internet and mail order merchants to use an Internet gateway service, although some commercial banks will cover this fee on behalf of their customers as part of the package.

annual fees

Commercial banks often charge them when free terminal equipment is offered to receive payments (such as portable card cleaning machines, or PDQs).

Cancellation/Termination Fees

Most merchant accounts require a one or two year contract agreement and if a merchant cancels early, they will likely be charged a cancellation fee.


Banks now make a large proportion of their profits by charging fees both to end consumers or account holders (although they are concerned about overdoing it to avoid ‘churn’) and to merchants who wish to offer payment services to their customers. In the latter, there are many direct and indirect fees in the mix that need to be carefully considered, as they can make the cost of providing a product or providing a service much more expensive than organizations think (up to 5% of fees). income). as we suggested in a previous blog article). However, with the rise of the internet and so many more options now available to the merchant, the fee landscape for the particular merchant is rapidly changing and it is possible for a merchant to get more value for the expense of their fees (especially since getting to better understand what different transactional fees may be charged). So, in the next article, we’ll look at whether merchant fees on payment transactions are likely to change in the coming years (and we predict they will certainly change considerably).

Leave a Reply

Your email address will not be published. Required fields are marked *