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What Are Merchant Service Fees?

In these challenging times businesses are looking for ways to reduce their costs, now and into the future, especially post lockdown.

Have you been paying a hefty sum every month towards merchant service fees? 

If you have, you’re not alone. In fact, about 60% of Australian businesses are concerned about merchant service fees (Caddy et al 2020). Yet, despite this, many small businesses, like you, end up paying these fees because they don’t understand the process or how these fees are charged. 

But what exactly are merchant service fees? In this post, we’ll look at these fees in more detail and give you a solution to reduce or even avoid paying them.

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What are Merchant Service Fees?

In simple terms, a merchant service fee is a fee you pay to your bank or provider to process your transaction payments. This fee is calculated as a percentage (or fixed fee) of every transaction where a customer swipes, inserts, or taps their card at your terminal. 

For every transaction, your bank then pays the other fees which include a fee to the issuing bank (e.g. the bank that issued the card), the scheme fee (e.g. Visa, Mastercard, EFTPOS), and the switch fee (who processes the transaction). 

Typically, between these, the issuing bank gets the biggest cut because of the interchange fee, which can partly fund expensive reward point programs for customers and costs associated with issuing the card.

Why Do You Pay a Merchant Service Fee?

To understand why you pay a Merchant Service Fee, it helps to understand how electronic payments work first:

How electronic payments work
  1. Your customer swipes, inserts or taps their card at your terminal.
  2. Your terminal tells the acquirer (probably your business bank) about the transaction..
  3. The acquirer the issuer and the card scheme play some data ping-pong to confirm the transaction.
  4. Your bank tells your terminal the transaction is accepted.
  5. Your acquirer (Who provides your EFTPOS terminal) puts the money in your account.

That’s a simplified explanation, but it’s enough to demonstrate two things.

1. There are plenty of players involved.

2. There is expensive technology and expertise involved. Every day in Australia, the ultra-secure EFTPOS system handles more than 6 million transactions via 981,000 terminals. That’s more than 4,000 transactions per minute. And what pays for all this? In part, your Merchant Service Fees.

How To Avoid Merchant Service Fees?

By this time, you’ve probably guessed that merchant service fees can add up to a hefty sum. Yet, over 78% of Australian businesses stick with their EFTPOS provider despite about two-thirds thinking they could get a better deal3. Are you one of them?

If you are, it’s probably time to see how you can reduce or avoid merchant service fees. Your best options to do this would be Smartpay’s Simple Flat Rate or Zero Cost EFTPOS products. 

As the name implies, with Simple Flat Rate you’ll pay a flat rate for every credit and debit transaction. As a result, you pay the same fee for every transaction, no matter what card the customer is paying with. Also, in contrast to all-inclusive pricing structures, you only pay for what you use which makes it easier to budget.

While our Simple Flat Rate allows you to reduce merchant service fees, our Zero Cost EFTPOS allows you to eliminate them completely. It does this by passing on the fair cost of the transaction to your customer. If your customer chooses to pay by card and the small surcharge, you keep all the money from your sale and the fees are taken out daily – therefore no reconciliation needed at the end of the month.

In Closing

If you’re concerned about merchant service fees and how much they cost you every month, it’s vital that you shop around and explore the different pricing structures available. It’s easy to do, and you could end up saving a lot of time and money. 

Worried about surcharging your customers?  Read our merchant success stories where our merchants find that the majority of their customers don’t have an issue supporting their local business by paying a surcharge.

To find out more about Smartpay’s Simple Flat Rate and Zero Cost EFTPOS products and how they could help you reduce or eliminate merchant service fees, visit our website for more details.


1. Source:, RBA

2. Source: Australian Payment Network

3. Source: Canstar Blue, Merchant Services Compared

Other References

Caddy J, L Delaney, C Fisher and C Noone (2020), ‘Consumer Payment Behaviour in Australia’, RBA Bulletin, March.

Want to know more about surcharging?

If you’re keen to learn more about how surcharging on EFTPOS works, or what you could save, find out more about SmartCharge. To talk about how surcharging could work for your business get in touch with the team at Smartpay.