Online stores often offer customers a better deal than brick-and-mortar retailers for obvious reasons, but behind the scenes, merchant fees and processes also cuts into the bottom line.<\/p>\n
Standing between the online merchant and the customer is a payment gate which authenticates and processes the payment made from account to account.<\/p>\n
Attached to this process, is a fee payable by the online retailer, called a merchant fee.<\/p>\n
Merchent fees vary from retailer to retailer, and each merchant needs to negotiate a rate with the applicable banks, which is usually determined based on turnover figures.<\/p>\n
The fee is typically calculated as a percentage of the value of the transaction that has gone through the site – a percentage which usually decreases the more you sell; this means that the bigger an online merchant is (in terms of turnover), the less it pays in merchant fees.<\/p>\n
Merchant fee structures<\/strong><\/p>\n Banks and third party companies create a platform called “payment gates” which act as a transactional gateway between a customer’s account (authenticated via entering their details online) and the merchant’s account where the money is paid to.<\/p>\n FNB’s mobile payment gate, Cell Paypoint, adopts a model whereby merchants pay a fee that’s a percentage of the value of the transaction being processed.<\/p>\n A different model, such as the Standard Bank-intergrated payment gate, MyGate, offers various flat-rated transaction fees, ranging from R1.00 to R1.80 per transaction.<\/p>\n However, there are two kinds of payment gateway services:<\/p>\n The first requires companies to register as online merchants with banks – such as FNB’s Cell Paypoint, MyGate, PayGate et al – while the secondy type does not require bank registration.<\/p>\n The eBay-owned PayPal service is one such payment gate.<\/p>\n PayPal enables any company to act as an online merchant so long as they have a PayPal account to process transactions.<\/p>\n The service has no monthly set-up or cancellation fees, and merchants pay only when they receive payments.<\/p>\n The merchant fees are tied directly to an online retailer’s monthly income, and are calculated at a base of US$0.30 (R2.46) plus 2.4% – 3.4% of the transactional value.<\/p>\n Affecting online retail<\/strong><\/p>\n Wantitall.co.za’s Justin Drennan says that the company has been working at reducing its merchant fees since launching in 2007.<\/p>\n “Since then (2007) we’ve seen a steady decline in rates, as our turnover grew,” Drennan said.<\/p>\n While the fees have an obvious impact on online retail business, Drennan feels it’s all part of the space in which Wantitall operates.<\/p>\n “Credit card processing fees form such a small portion of total costs within our business that we don’t see it as a massive hindrance to our business,” Drennan said.<\/p>\n “We don’t find the fees to be excessive. At the end of the day its not about bank fees, its about relationships, service and innovation,” he continued.<\/p>\n “At the end of the day you are willing to pay for a great service, and we partner with banks which provide us with that level of service.”<\/p>\n Online retailer, Kalahari.com wouldn’t go into detail about the ins and outs of its merchant relationships with banks or third parties.<\/p>\n However, the retailer did offer that payment gateways like Naspers-owned PayU’s EasyMerchant (which Kalahari.com uses) would make it easier for smaller businesses to accept online payments where no online merchant account at the bank is required.<\/p>\n Related articles<\/strong><\/p>\n 3-D Secure flawed: PayGate CEO<\/strong><\/a><\/p>\n Cardfather puts a hit on credit card fraud<\/strong><\/a><\/p>\n