The complete guide to merchant fees: Types, costs, and how to reduce them

If you are a CFO, Head of Payments, or an operational decision-maker, then you know that merchant fees are much more than just a line item. Merchant fees have a direct connection to your bottom line, and are connected to other important payment platform performance indicators. This guide breaks down what you’re being charged, why it matters, and what steps you can take to reduce costs without compromising performance. Whether you're running a high-growth marketplace or optimising payment operations in a mature enterprise, understanding merchant fees helps you make informed decisions and stay competitive.

What are merchant fees?

Merchant fees are the costs businesses pay to accept payments from customers. These charges come from banks, credit and debit card networks (like Visa and Mastercard), and payment providers, and vary depending on the transaction type, method, and pricing model. While impossible to avoid, understanding what drives these fees allows you to make smarter financial decisions and improve your margins.

Types of merchant service fees explained

Merchant fees fall into distinct categories depending on the nature of the transaction and the services provided. Some are incurred on every payment; others appear only under specific conditions. The table below offers a concise overview of the most common types of merchant fees you might encounter.

Understanding pricing models and fee structures

The way your provider structures fees has a direct impact on your bottom line. Some models offer simplicity, while others provide more transparency or cost-efficiency as you scale. Here’s a side-by-side look at the most common pricing models and how they work:

International payments and cross-border fee considerations

Accepting card payments from customers across borders introduces both opportunity and complexity. Fee structures often shift when currencies are converted, local regulations come into play, or banks classify transactions as higher risk. For businesses expanding into new regions, these added layers can distort unit economics and increase reconciliation challenges. Understanding the mechanics of international payments helps you reduce friction, stay compliant, and avoid overpaying.

Global vs. local acquiring

Processing credit and debit card payments through a global provider may seem efficient, but it often comes with added costs. Local acquiring means using a licensed acquirer in the customer’s region or country. This lowers cross-border fees, increases authorisation rates, and improves settlement speed. In fact, relying solely on international acquiring can significantly increase transaction fees compared to a local setup, as global processors often apply additional cross-border surcharges.

Multi-currency accounts

Holding balances in local currencies helps you avoid conversion costs and reduces FX risk. You also gain more predictable settlement outcomes, with greater control over currency exposure and timing.

Managing compliance costs globally

Different countries have different rules. Using a truly global provider familiar with regional compliance reduces the risk of extra charges, errors, or penalties.

How merchant fees impact your business

Merchant fees go beyond surface-level percentages or flat fees. When left unchecked, they can erode margins and slow down growth. But when actively managed, they can reveal insights into how payments flow, where friction exists, and what levers you can pull to improve performance.

Some common consequences of unmanaged merchant fees:

• Lower profit margins: Fees accumulate transaction by transaction. For high-volume businesses, even a 0.1% differential can mean hundreds of thousands lost annually.
• Reduced conversion rate: High card transaction costs can create drop-off at checkout, leading to lost sales.
• Unclear cost attribution: Without transparent reporting, it’s difficult to assign costs accurately across channels, markets, or payment methods.
• Reconciliation challenges: Managing multiple systems or providers can fragment data, slow financial close processes, and increase error rates.

Put simply, merchant fees affect more than your transaction costs. They influence your ability to serve customers, forecast accurately, and grow into new regions with confidence.

How to reduce merchant fees (without compromising performance)

There’s no single solution for reducing merchant fees, but there are several proven strategies that, when used together, can lower costs while improving payment performance:

• Optimise your fee structure: Review your pricing model to match your transaction volume and patterns. Interchange-plus pricing typically offers better visibility and value for scale.
• Use local acquiring: Partner with regional acquirers in your core markets to reduce cross-border fees and improve authorisation rates.
• Offer local alternative payment methods: Supporting popular payment methods like digital wallets can reduce decline rates and cart abandonment.
• Consolidate your providers: Managing payments through fewer vendors simplifies reconciliation, reduces layered costs, and strengthens negotiation power.
• Automate compliance and risk management: Integrated tools can reduce manual errors, limit chargebacks, and support compliance with local rules without adding operational burden.
• Payment orchestration: By intelligently routing transactions to local or lower-cost acquirers, orchestration platforms reduce cross-border surcharges, lower per-transaction fees, and improve approval rates.
• Negotiate based on volume: As your business grows, use transaction scale as leverage to negotiate lower rates or improved terms from providers. As your volume grows, you gain leverage. Use it. Many providers will lower rates if you commit to higher throughput or exclusive processing.

What to ask when evaluating a provider

Choosing a payment provider is more than comparing rates. It’s about aligning with a partner that can scale with your business, reduce operational load, and help you meet compliance standards across borders. Here are key questions to ask:

• What’s included in your quoted fee? Look beyond the headline rate—ask about hidden fees for setup, chargebacks, currency conversion, or reporting.
• Can you support my preferred payment types globally? Ensure the provider supports local wallets, bank transfers, cards, and newer methods like BNPL in your target markets.
• Do you offer local acquiring in the countries where I operate or plan to expand? Local acquiring reduces cross-border costs and improves authorisation rates.
• How do you handle multi-currency settlement? Find out if you can receive funds in local currencies or consolidate into a preferred home currency.
• What are your reconciliation and reporting capabilities? Look for consolidated dashboards, real-time reporting, and downloadable reports for finance teams.
• Do you offer support for compliance, fraud prevention, and data security? Understand what’s built in and what you’re expected to manage separately.
• What are your SLAs for uptime and dispute resolution? Payment reliability is critical—know what guarantees and support coverage are provided.
• How easy is integration, and what developer resources are available? Check for SDKs, documentation, and sandbox environments that can reduce development time.
• Can your platform adapt as my business model evolves? Ask whether the provider supports recurring billing, in-app payments, split settlements, or new monetisation models.

Bottom line

Fees aren’t just costs to be endured. Managed well, they become a strategic lever helping you enter new markets, convert more customers, and stabilise cash flow. It’s not about avoiding merchant fees, it’s about understanding them well enough to make every percentage point work in your favour.