How Pay by Bank Minimizes Merchant Account Fees

Unfortunately, there’s no escaping merchant account fees, also known as merchant service fees. They come with allowing debit or credit card payments from your customers. There's also no denying that American merchants have been paying increasingly high costs associated with card payments. According to a 2024 Merchants Payments Coalition press release, total swipe fees from credit and debit cards reached $172 billion, a 7% increase from 2022.

The truth is that swipe fees are one of the largest single expenses for merchants. Interchange fees for credit card transactions can reach as high as 3.5% per transaction. In addition to the major fees, there are other costs as well that add up and directly undercut revenue.

So, how can your business minimize merchant service fees? The first step is understanding the different types of fees and pricing models so you can strategize to keep these costs down.

In this article, we’ll discuss:

• The different types of merchant account fees
• How Pay by Bank minimizes merchant fees
• The trends impacting these fees

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 4 Types of Merchant Account Fees

Merchant account fees are costs associated with card payment processing. The amount depends on the parties that facilitate these transactions, such as payment processors (or merchant service providers), banks (which issue cards and also offer payment processing), and credit card companies or networks (such as Visa and Mastercard). Financial institutions that provide card processing services are called "acquirers" or "acquiring banks.”

The list below includes the most common processing fees you can expect, so you can better understand your contracts and know what to look for when reading your billing statements.

1. Transaction-Related Fees

• Interchange fees are charged by the card issuer. The cost is based on the interchange rate and is usually a percentage of the transaction amount (ranging 1.5%-3.5%, on average) plus a fixed fee. The amount depends on various factors, such as whether the transaction was in-person or card not present (CNP). This fee is included in the Merchant Discount Rate agreement from your acquirer.
• Assessment fees (or association fees) are paid directly to the credit card network (Discover, American Express, etc.) for using their systems. Although these associations primarily partner with banks, some can issue cards themselves.
• Authorization fees are charged by the card network for any transaction that was processed, regardless of whether the payment went through or the card was declined.
• Payment processor fees are charged by the company that handles all the technical processes required in card processing, such as payment service providers. This fee can be a percentage of each transaction or a flat fee per transaction.
• Chargeback fees occur when customers dispute a transaction, and the amount is returned to the card. The fees cover the acquirer's admin costs in reverting the funds.
• Batch fees are a flat fee charged by the processor for settling a group of transactions all at once. Some merchants prefer batch processing because they can have lower transaction fees overall.

2. Recurring Fees

• Monthly statement fees are charged by providers for printing and mailing statements of transactions. You can avoid this by opting for online statements.
• Payment gateway fees are charged by processors for using their technology, which reads the customer’s card and sends the information to the acquirer for processing.
• Monthly minimum fees (or processing commitment fees) are charged by some processors if your total transaction fee does not reach the agreed minimum amount. You will have to pay for the difference between your actual transaction amount and the minimum amount.

• PCI compliance fees are for using the processor's tools and services so that you can comply with the Payment Card Industry Data Security Standard (PCI-DSS). Enterprises usually pay more than small business owners because of higher transactions.
• PCI non-compliance fees are a fine for merchants who do not comply with PCI-DSS policies. The fee depends on the number of non-compliant transactions and how long the merchant was non-compliant.

3. One-Time Fees

• Setup fees are charged by some merchant service providers for setting up an account, excluding the costs of card readers or point-of-sale systems.
• Early termination fees are paid for the premature cancellation of contracts.

4. Situational Fees

• PIN debit transaction fees are a markup based on a debit card payment that requests a personal identification number (PIN). This routes the transaction to a debit payment network instead of a credit network.
• Address verification system fees are for transactions that include checking the customer’s billing address to ensure that it matches the address listed in the card’s issuing bank.

• Voice authorization fees are charged by the processor whenever the issuing bank contacts a cardholder to verify that they made the transaction.

How Pay by Bank Minimizes Merchant Account Fees

For the longest time, merchant account fees have been considered a necessary cost of business to offer more payment options. But there’s actually an alternative payment method that doesn’t come with these fees at all一Pay by Bank powered by Open Banking.

This framework has enabled real-time data sharing between financial institutions and merchant service providers. Through open APIs (application programming interfaces), customers can connect their bank accounts to multiple payment apps. Once connected, they don’t have to input their details manually for every transaction.

In particular, real-time Pay by Bank is a convenient, low-cost alternative to credit cards. This account-to-account payment instantly and directly transfers funds between bank accounts. You won’t have to worry about intermediary and interchange fees. Because of this connectivity, processing costs are minimal and there are no hidden fees.

What’s more, some solutions, like Trustly Pay, offer guaranteed payments at no additional costs. This means Trustly assumes all risks, including fraud, so that your payments always go through. We’re able to do this because of our machine learning risk engine that analyzes patterns and behavior. Based on this analysis, we can confidently approve or flag transactions.

You can encourage this shift to Pay by Bank by giving incentives or discounts. Plus, partnering with real-time payment providers like Trustly can guide you on the best solutions to minimize processing fees.

Trends Impacting Merchant Account Fees

While it can be discouraging to see high swipe fees on your statements, the good thing is that the convergence of financial technology, merchant pushback, and regulatory changes is pressuring card networks to reconsider their pricing.

Here are some developments in these areas:

The increasing popularity of digital payments: Open Banking technology has opened up more collaboration among banks and FinTechs to create customer-centric apps and platforms. This means minimal fees on top of real-time payment processing and convenience.

Regulatory changes: In March 2024, Visa and Mastercard finally agreed to place a cap on swipe fees, a deal that could potentially save U.S. merchants $30 billion in the next five years. While it didn’t get court approval, merchants are hopeful that the networks will continue to negotiate with them. In addition, the Credit Card Competition Act is being read by Congress, which would require large financial institutions to offer at least two card networks (and they can’t be both Visa and Mastercard).

Avoid Costly Merchant Fees With Trustly

Merchant account fees affect your bottom line, and will only increase in the future don’t have to be a necessary evil. You can explore more cost-effective payment solutions, like Trustly’s Pay and Payout such as Trustly Pay, which uses account-to-account technology to guarantee payments directly from bank accounts. Meanwhile, Trustly Payouts is a customer-friendly alternative to chargebacks.

Schedule a meeting with an expert to learn how we can help you minimize transaction fees.

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