10 reasons why interchange and the fees billed by Visa and MasterCard to banks are so complex
The fees charged by Visa and Mastercard to banks for payment processing services are complex for a few reasons that include:
1. Thousands of fee items- Visa and MasterCard bill independently and each network has thousands of different billing codes for different types of transactions, licenses, projects and programs that they charge the banks for. Typically these fee descriptions are littered with payment billing jargon making them very difficult to understand.
2. Different Types of Fees: There are various types of fees that Visa and Mastercard charge to banks, including interchange fees, assessment fees, annual fees, BIN fees and set up fees to name just a few. Each of these fees has its own set of rules, rates, and cost structures, making it difficult for banks to understand and compare the costs associated with different types of transactions across the payment networks.
3. Time periods- Depending on the network, different fees are billed by Visa and MasterCard either daily, weekly, monthly, quarterly and annually.
4. Variable Rates: The rates for interchange and other fees are not fixed and may change depending on a variety of factors, including the type of card used, the type of transaction, the risk associated with the merchant, and the bank’s overall processing volume. This means that the cost of processing a transaction can vary greatly depending on the circumstances.
5. Issuing and acquiring- Different fees apply exclusively to issuers, some fees only apply to acquirers and other fees to both issuers and acquirers.
6. Customised fees per bank- Banks typically have a separate commercial agreement with the networks where certain fees are discounted or incentivised based on volume thresholds being reached.
7. Cross border and foreign currency transactions introduce further complexity.
8. Complex Eligibility: Eligibility for different interchange categories, which determine the fees, may depend on several factors such as the type of business and the way in which the transactions are processed. Banks need to be aware of these factors and ensure that their merchants are classified correctly to benefit from the lower interchange fees.
9. Constant Changes: There is an ever-changing set of payment technologies, rules, charges, and regulations that govern transactions. Interchange and scheme fees are subject to regular changes from the networks, and these changes are not always communicated clearly and not always communicated to the right people.
10. Lack of transparency: Banks may not have a clear understanding of the fees they are paying due to lack of transparency in fee structures and costs coupled with all the payment billing jargon. This can make it difficult for banks to not only verify invoices but also accurately budget and plan for payment processing costs.
All of these factors, individually and combined, make it extremely difficult for banks to fully understand and predict the costs associated with payment processing, which can create challenges in budgeting and financial planning. It is crucial for banks to work with payment and billing specialists like PayIP to help them navigate these fees, verify their billing and save them significant monies.
Contact us at info@payip.co.za for more information