What Banks and FinTech’s Need to Know – Breaking Down Visa and MasterCard Billing
As a bank, the fees associated with Visa and MasterCard products and credit and debit card payment processing are complex, and it’s essential to understand what a Bank is paying for. After all most banks are paying hundreds of millions of dollars to the scheme networks (Visa/MasterCard/Amex) annually .
One key component of payment processing fees is interchange fees. However, although these fees are set and settled by Visa and MasterCard they are actually earned by the issuing bank (the bank of the cardholder) and charged to the acquiring bank (the bank of the merchant) for each transaction processed on the network. They are intended to cover the cost of operating the payment infrastructure, including the cost of processing transactions, maintaining security measures, and developing new payment technologies.
In addition to interchange fees, banks are also charged assessment fees by Visa and Mastercard. These fees are either fixed fees or a percentage of the transaction amount or are variable based on the volume of transactions of the bank, and they are used to cover the cost of maintaining the payment infrastructure, including the cost of compliance with industry regulations.
Banks are also charged other fees by Visa and Mastercard, such as annual fees, BIN fees, ICA fees and set up fees, that are used to cover additional services such as chargeback management and fraud protection.
Different fees are charged weekly, monthly, quarterly or annually. Add in cross border, foreign exchange and all the payments jargon and it can be completely overwhelming for a banks accounting department.
Visa and MasterCard have literally thousands of different fee events, codes and descriptions.
Another major challenge for banks is the regular changes in scheme fees, without proper notification or information to the appropriate bank personnel which can cause significant financial impacts on the bank. Bank’s also often have incentive and discount agreements with the network’s where the fees and rates change based on volumes or other metrics.
Furthermore, Banks face the challenge of keeping up with the constant evolution of technology, new payment methods and networks are emerging which can affect the way scheme fees are calculated and charged.
To minimize the impact of these fees on your business, it’s essential to understand the fee structure and costs associated with each type of fee and to regularly review and analyse your billing to ensure that you are being charged correctly. The complexity and regular changes in the fee structures and costs, as well as the need to keep up with the changing payment landscape, make it difficult for banks to accurately budget and plan for payment processing costs.
Understanding the different types of fees associated with payment processing is complex yet crucial for banks. By being aware of interchange, assessment, and other fees, banks can better manage the cost of payment processing services they offer and ensure they are not being over billed nor paying for services they not even utilising.
It’s crucial for bank to work with a reputable payment and billing specialist like PayIP that offers billing expertise which can help banks better understand, manage and predict their scheme network (Visa/MasterCard/Amex) costs.
Specialists like PayIP can also identify services that are activated and being billed for but either are not required or are not being utilised by the bank.
