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Running a business comes with plenty of moving parts, and one of the key considerations for any business owner is how to handle payments efficiently. Whether you’re using tap to pay at the counter, running an online store or offering professional services, merchant fees play a role. But what are merchant fees exactly, why do they matter and how can you manage them effectively? Let’s break it down.
What are merchant fees?
Merchant fees are the costs businesses pay to accept and process electronic payments. Whenever a customer pays with a credit or debit card, digital wallet or other online payment method, their payment goes through several steps to get from their account to yours. The payment processor verifies the transaction, transfers the funds and secures sensitive data – all in just a few seconds. Merchant fees cover the costs of the technology and systems that make all this possible. You can learn more about card processing fees here.
These fees vary depending on factors like the transaction type (e.g. in-person vs online), the payment method (e.g. credit vs debit) and which payment processing provider you’re using, as each has its own pricing structure.
Why understanding merchant fees is important for businesses
Merchant fees might seem small and insignificant per transaction, but they’re an ongoing expense that can add up quickly. According to the Reserve Bank of Australia, increased card usage by customers led to Australian businesses paying around $6.4 billion in fees in 2022–23. By understanding the costs involved, you can better plan your finances and manage expenses, which helps prevent budget surprises. Being proactive with fees also means you’ll have more room to invest in other areas of your business, whether it’s upgrading equipment, expanding inventory or services, or improving the customer experience.
Not all payment processing solutions are created equal, either. Being aware of the different fees and how they apply can help you choose the most cost-effective payment processing options that align with your business’ needs.
Types of merchant fees
Merchant fees come in various forms, depending on how transactions are processed. Here’s a summary of the most common ones:
| Fee type | Description | Key details |
| Transaction fees | Costs applied to each payment processed, typically a percentage of the transaction amount |
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| EFTPOS facility fees | Fees for setup and use of card terminals for in-person transactions |
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| Other service fees | Additional fees for payment processing and related services |
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Transaction fees
Transaction fees are incurred every time a customer makes a payment. They’re usually a percentage of the transaction amount (often between 1.6%–2.9%), and may also include a small fixed fee per transaction (typically 10c–50c). These fees are common with credit card payments and can vary depending on the provider and the payment type – for example, credit card merchant fees are typically higher than debit card fees. Online payments also tend to incur higher transaction fees than in-person transactions due to increased fraud risks.
EFTPOS facility fees
EFTPOS merchant fees are the charges associated with using card payment terminals for in-person transactions. These fees typically include either a rental fee for leasing a terminal or a one-time cost if you decide to buy one outright. Additionally, some providers may charge fees based on the volume or value of transactions you process.
Other service fees
Beyond transaction and EFTPOS-specific costs, you may come across other cumulative service fees associated with card payments. These can include monthly statement fees, which cover account management and reporting. You might also face chargeback fees if a customer disputes a transaction, as the process to resolve these disputes often incurs a cost. Some providers also charge refund fees for processing returns or refunds. If you’re running an online store, platforms like Shopify or Lightspeed may charge subscription fees for their bundled plans.
Understanding your merchant fees
To manage your costs effectively, it’s important to regularly check and review your merchant fees. A great way to do this is by going through your monthly statements, which typically outline all the fees you’re being charged. Take time to go through them and see exactly what you’re paying for. This can help you uncover any patterns or fees that might be higher than expected, along with any unexpected charges, billing errors or changes to your fee structure.
Another thing to keep an eye on is your transaction volume and the payment methods your customers prefer to use. Fees can often scale with the number of transactions you process, and the type of payment method can have an impact on your costs. For example, debit card transactions tend to have lower fees than credit card transactions, so you might consider encouraging customers to pay by debit card, such as through incentives or discounts, which can help lower your overall costs.
Do merchant fees have GST?
Most merchant fees in Australia include GST at the standard 10% rate. If your business is registered for GST, you can claim GST credits on these fees. Checking your statements or invoices helps confirm how much GST is included so that you can report it accurately in your BAS (business activity statement).
Ways to minimise merchant fees and costs
While merchant fees are inevitable, there are ways to reduce their cost or impact. These practical tips can help you keep more of your hard-earned profits.
- Negotiate rates with providers. Payment processors may have room to adjust their rates, especially if your business handles a steady or high transaction volume.
- Opt for value-added services. Some providers include extras like point-of-sale (POS) software, reporting, inventory management or customer insights, which can offset higher fees.
- Eliminate setup costs. Consider a payment processor that doesn’t charge for initial account setup or activation.
- Buy equipment instead of renting. Instead of paying ongoing rental fees for an EFTPOS terminal, consider buying one outright, like the portable Square Reader or Square Terminal, which can save you money in the long term and give you more control over your equipment.
- Choose transparent pricing. Opt for providers with clear, flat-rate pricing. These avoid unpredictable fees and make it easier to budget for transaction costs.
- Consolidate providers. Simplifying your setup by using one provider for all payments reduces the complexity – and costs – of juggling multiple accounts or systems.
Surcharges to help recover fees
While reducing merchant fees is ideal, recovering some of these costs through surcharges is another practical option. Businesses can add a small surcharge to customer transactions to offset the fees they pay. However, it’s important to be mindful of how you apply surcharges to comply with regulations. To legally pass on merchant fees, Australian businesses can apply surcharges for card payments as long as they don’t exceed the actual cost of processing the payment.
Clear communication is key here – a simple notice or clear signage informing of the surcharge keeps things transparent. By balancing the surcharge amount reasonably, you can ensure customers aren’t discouraged from completing their purchase, while a positive, open approach helps maintain trust. When handled thoughtfully, surcharges can cover costs while still keeping your customers happy.
Choosing a payment processing provider
Choosing the right payment processor is an important decision for any business that accepts in-person or online payments. Start by comparing providers based on their fees – look for clear, upfront pricing and predictable costs, and check for hidden fees, cancellation penalties or long-term commitments. If you accept payments in person, an EFTPOS merchant fees comparison can help you see how different providers stack up and spot potential savings.
Flexibility and ease of integration are also important. Check whether the payment processor is compatible with your existing setup, like your POS system, accounting software or online store. Does it offer extra merchant services like reporting tools, POS software or inventory management? These can make your day-to-day operations easier and save you money and time.
And having reliable customer support is key – you’ll want to know you can get help when you need it. Finding the right combination of affordability, features and support will help set up your business for smooth sailing.
Square’s merchant fees
With Square’s transparent, flat-rate pricing, you’ll only pay for what you need and always know what you’re paying – no hidden fees or complicated tiers.
- For in-person payments, such as credit and debit card payments made via tap or insert (including digital wallets like Apple Pay and Google Pay), a simple rate of 1.6% per transaction applies.
- For online and remote payments, such as payments made through your Square Online store, Square Online Checkout, eCommerce API or online invoices, it’s a simple rate of 2.2%.
Helpful features like dispute management, fraud prevention, connected POS and live phone support are all included at no extra cost, offering peace of mind. With no setup or cancellation fees, it’s a flexible choice for small to medium businesses, helping you manage payments without the hassle. And as your business grows, Square grows with you – if you process higher volumes or larger transactions, you may qualify for custom rates, making it easier to scale with the right support.
Compliance
When applying surcharges or fees, staying compliant is just as important as choosing the right strategy. By charging a reasonable amount and following the Australian Competition & Consumer Commission’s (ACCC) surcharge guidelines, you can ensure everything runs above board. Regulations can change, so it’s a good idea to stay updated with industry standards to avoid unintentional breaches or penalties. Transparency also goes a long way – being open about fees builds trust with your customers and helps strengthen those important relationships.
This article is for informational purposes only and does not constitute legal, personal or tax advice. The information contained herein is subject to change and may vary from time to time. For specific advice applicable to your business, please contact a professional.
1.6% card present rate applies for Square Sellers who sign up on or after 30 May 2024, or who signed up prior to this date and subscribed to a paid software plan. The rate of 1.9% will apply for all other Square Sellers who signed up prior to this date when using Square Reader, Square Stand or Tap to Pay, as listed in the Square Fee Schedule.
