Did you know Merchants can negotiate their cost of Merchant Service Fees (MSF) to improve their profit margins?  This may be a very big surprise to the many thousands of merchants around Australia who have accepted the percentage buried somewhere in a contract.

The MSF may be a ‘blended’ rate or it may be an ‘interchange plus’ or a ‘cost plus’ rate, depending upon the preference and circumstances of the particular merchant.

Merchant Service Fees are paid by a merchant to their Acquirer in exchange for having payment cards issued by Visa, Mastercard, eftpos and other schemes, accepted and processed according to the rules of the scheme.  The Acquirer must be an acquiring member of each scheme in order to offer acquiring services to merchants.  The merchant and the Acquirer negotiate and execute a Merchant Agreement which specifies terms, conditions and prices.

The Acquirer pays Interchange Fees (see earlier article here) to the Issuer and also pays Scheme Fees to the relevant card scheme.  Credit card interchange fees are priced as a percentage of the transaction value, whereas debit card interchange fees are priced as a fixed number of cents per transaction for Card Present and a percentage for Card Not Present (e-commerce and telephone) transactions.


There are a wide range of interchange prices set by the schemes for different types of cards, merchant segments and acceptance conditions.  As an example, Visa currently has 22 different interchange rates for Australian issued credit cards.

For this reason, many smaller merchants prefer to have a ‘blended’ MSF, with all Visa and Mastercard transactions having the same MSF to make reconciliation simpler for the merchant.  For merchants with low volumes of transactions and not wishing to spend time on administration, a blended rate MSF may be the best choice.

For some merchants however, it will make sense to consider either ‘interchange plus’ or ‘cost plus’ MSF rates.  These rates are based upon the merchant agreeing to reimburse the Acquirer for their cost of interchange plus a margin (interchange plus) or, alternatively to reimburse the Acquirer for their cost of interchange and Scheme Fees plus a margin (cost plus).

This type of MSF pricing gives the merchant more visibility of their card mix and the interchange fees they are paying and more transparency of the margin being earned by the Acquirer.  The negotiated margin may be a fixed amount of cents per transaction or may be a percentage depending upon the merchant’s payments mix.

The merchant may also consider a tiered margin that declines progressively as payment transaction volumes increase over time.  This is more appropriate for Merchant Agreements that apply for three to five years, where inflation may be a factor to include in the model.

Payments Consulting Network can assist merchants who may wish to have expert support during the modeling and negotiation process.

Author: Robert Roylance, Associate, Payments Consulting Network, Sydney
Email: robert.roylance@paymentsconsulting.com

If you found this article helpful and would be interested in reading similar articles by our consulting team, please sign up to our email newsletter or download our most recent newsletter at https://www.merchantpricing.com/newsletter-archive.

After 13 years, banks make routing choices on tap 'n go debit available Posted on: 29-03-2019

After 13 years, banks make routing choices on tap 'n go debit available

ANZ this week became the first major Australian bank to offer merchants a choice as to how contactless (Tap and Go) debit card transactions are processed, and Westpac is expected to follow with similar functionality next week.

Read More

Paper-free Payments: Australia and NZ Work on E-invoicing Standard Posted on: 14-11-2018

Paper-free Payments: Australia and NZ Work on E-invoicing Standard

Australia and New Zealand are planning to create trans-Tasman standards for electronic invoicing in an effort to save $30 billion over 10 years.

Read More

Australia’s E-commerce Industry Needs Improvement Posted on: 31-10-2018

Australia’s E-commerce Industry Needs Improvement

Couriers Please conducted a survey of over a thousand Australians and found out that respondents believe there is a lot of room for improvement in Australia’s e-commerce offerings.

Read More

Visa Unveils New Partners on Tokenization to Increase Payment Security Posted on: 26-10-2018

Visa Unveils New Partners on Tokenization to Increase Payment Security

According to a press release made by Visa, they have 20 new gateway and acquirer partners that have agreed to deploy Visa Token Service for credential-on-file used by merchants. This Visa Tokenization offers another layer of ser, resulting in frictionless

Read More

What is Dynamic Currency Conversion? Posted on: 30-08-2018

What is Dynamic Currency Conversion?

Dynamic Currency Conversion (DCC) is one of the very few ways that a merchant can generate an income from their customer payments. It is not for everyone, but every merchant should consider whether or not it is suitable for them.

Read More

Australian Regulator ‘Unlikely’ To Embrace Interchange Fee Ban Posted on: 16-08-2018

Australian Regulator ‘Unlikely’ To Embrace Interchange Fee Ban

The Reserve Bank of Australia (RBA) is said to be “hesitant” to lower interchange fees to zero, after the government received recommendations to ban the charge by the end of next year.

Read More

Key Recommendations of the Productivity Commission Final Report into Competition in the Financial System Posted on: 14-08-2018

Key Recommendations of the Productivity Commission Final Report into Competition in the Financial System

Australia’s Treasurer released the long anticipated Productivity Commission Final Report into Competition in the Financial System. This report builds on David Murray’s Financial System Inquiry (FSI) and Wallis Inquiry.

Read More

Interchange Reform: Are We Falling Down a Rabbit Hole? Posted on: 08-08-2018

Interchange Reform: Are We Falling Down a Rabbit Hole?

The Productivity Commission (PC) has released their final conclusions and there are a range of findings affecting the payments system in particular interchange reform. Are we falling down a rabbit hole?

Read More

What is Interchange and Why Does it Matter? Posted on: 01-08-2018

What is Interchange and Why Does it Matter?

Even if you have never heard the term ‘interchange’ this article is for you as we look at what it is, why it exists and whether it matters to merchants who accept scheme-branded (Visa, Mastercard and eftpos) payment cards either online, in-store or both.

Read More

Tyro ‘Tap & Save’ Merchants Achieve Up to 20 Percent Savings Posted on: 12-06-2018

Tyro ‘Tap & Save’ Merchants Achieve Up to 20 Percent Savings

Tyro has achieved over 10 percent conversion of existing merchants and solid increase in new merchant sign ups since its launch of least cost routing in March 2018.

Read More