In business transactions, one has to be aware of the various fees one is required to pay for processing. Among these fees is the merchant service charge. It forms a very prominent part of the cost structure of electronic payment acceptance, mainly credit and debit card transactions. This paper will talk about a merchant service charge, its mode of operation, and the effects it has on businesses.
Definition of Merchant Service Charge
A merchant service charge is an amount a business pays to the MSP for processing electronic payments. The costs of handling card transactions and the infrastructural setup for setting out safe and efficient processing are represented by the fees. The charge usually represents a percentage of each transaction amount; however, it can also be a flat fee.
Components of Merchant Service Charges
The fees that makeup merchant service charges encompass only certain aspects of the payment processing ecosystem. Those elements are as follows:
Interchange Fees
The interchange fees are structured by the card networks—that is, Visa, MasterCard, and American Express—during transactions between banks for which the recipients of the fees paid are the issuing banks, which are the banks that issue credit or debit cards.
These fees compensate the issuing banks for the risk and cost of processing transactions.
The largest part of any merchant service charge will generally be the interchange fees. These fees will vary depending on factors such as card type, transaction type, and industry.
Assessment Fees
Card Networks charges assessment fees for the maintenance of their infrastructure, which handles the processing and routing of this payment information.
The assessment fees are a small percentage of the transaction amount.
While the percentage doesn’t differ based on things like card type or transaction type or even industry, it is the same for all transactions processed through a given Card Network.
Processor Fees
These are fees charged by the MSP for its services facilitating the transaction.
Processor fees are generally both payment gateway and point-of-sale system-related, as well as all other technology-based solutions that deliver secure and efficient processing of payments.
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