Understanding & minimizing card fees for all parties
While credit cards are popular payment methods that many travel companies rely on, particularly when companies focus on a shift to digital payment methods, the merchant and bank fees that accompany them are complex and can quickly eat away at a business’ revenue. Merchant card fees are determined by a number of contributing factors, including the card network (like Mastercard or Visa), the issuing bank, the type of card being charged (i.e., whether it’s a business or personal card) and where both your business and the cardholder are located. These fees can often range from 2% to 5% of the total payment, and in many cases, it will be unclear how the fees are determined.
As you set up and plan for payment processing costs, keep in mind the various types of card fees your business may be incurring:
Type of fee
How is it calculated?
Who collects it?
Who pays it?
Interchange fee
Determined based on the location of the cardholder and the location of your business.
Card issuers
Merchant
Scheme fees, card acquirer fees, and margin
Charged on an interchange, plus margin, plus scheme fees basis. The margin is generally determined based on volume, average transaction value, and potentially the merchant's risk profile.
Card networks (like MasterCard and Visa)
Networks charge acquirers, who pass these fees onto the merchant.
Payment gateway fees
A payment gateway is a route into an acquiring platform. Gateways authorize and perform fraud checks before authorizing and enabling access to alternate payment methods like PayPal, Venmo, and AliPay. Most gateways also securely store your guests' card numbers and perform tokenization services. They charge fees for all of these services.
Gateways
Note: Alternative payment methods may also charge you fees depending on your gateway's cost structure
Merchant
Payment Gateway Fees: Do you Know What Fees You are Paying your Gateway Provider?
Merchant card fees are determined by a number of contributing factors, including the card network (like Mastercard or Visa), the issuing bank, the type of card being charged (i.e., whether it’s a business or personal card) and where both your business and the cardholder are located. These fees can often range from 2% to 5% of the total payment, and in many cases, it will be unclear how the fees are determined.
Other methods, such as bank transfers, international wire transfers, PayPal, etc. all have similar but different associated fee structures as well. Because international agents and clients make up such a large percentage of the typical luxury accommodations' bookings, many businesses in the industry pay hundreds of thousands of dollars in fees on these payments. In addition to those fees incurred by your business, your valued clients are often incurring additional fees of their own, especially those paying from other countries. Clients paying by card, for example, often incur an inter-regional or cross-currency fee on top of the foreign exchange spread charged by their card issuer or bank. When sending a wire, banks often give poor exchange rates and can charge fixed fees upwards of $30. Finding ways to simplify and reduce these costs and provide transparency for all parties involved in the transaction will help increase agent and client satisfaction and, ultimately, increase the bottom line. There is an increasing number of financial technology companies and payment processors whose goal is to simplify the payment process while reducing the costs that come with using traditional banks and card processors. It can be a very worthwhile exercise to understand who is out there and how they may be able to reduce your fees.