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Understanding Network Fees

Let’s shine some light on the fee facts of issuing life.

Author: Kate Firuz, Director of Product

Optimizing Your Monthly Invoice is Possible!

Have you ever looked at your monthly cell phone bill and wondered what some of the charges were for? More often than not, simply asking the right question to your provider can help reduce some costs, or at the very least, get you some clarity. The same thing applies to your Card Program – whether you’re an experienced bank/credit union, a BIN Sponsor, or a Fintech, Network fees are a challenge to manoeuvre. Complex codes and seemingly endless number of Event and Services are difficult to understand, let alone know how to ask the right questions.

Let’s peel back the onion on Network Fees and start to explore what they are really about.

Scheme fees, also known as Network fees, are fees charged by the card networks (ie. Visa, Mastercard, Amex, Discover etc.) and cover a multitude of items related to the activity of any Card Program; these fees vary between the schemes and are charged to the BIN Sponsor, whether that’s a bank, credit union, affiliated fintech or other. While the standard fee that you may be quite familiar with already, interchange fees, which are collected by the schemes and paid to the issuers as revenue tend to be publicly available, the additional fees for issuing cards, on the other hand, are quite difficult to find, if at all.

Let’s look at some quick facts:

  • The fees are set by the Networks themselves
  • They can be charged as a variable fee per transaction, fixed fee, % fee, a flat fee or a combination of these
  • They vary periodically and can be charged throughout the year – weekly, monthly, quarterly or yearly

Network fees cover a long list of items, some standard examples are:

  • Authorization fees
  • Acquirer or Issuer Assessment fees
  • Volume fees
  • Marketing/Innovation
  • Cross-border fees
  • Clearing fees
  • Connectivity fees
  • Licensing
  • Scheme reporting
  • AML services
  • BIN management
  • Market development

Network fees are an important and necessary source of revenue for the Card Networks, but if not managed properly, can cause unnecessary revenue loss for Card Programs.

Let’s understand why?

There are a myriad of network fees that get charged to banks and BIN Sponsors, but with very little transparency about what the certain items relate to. Ultimately the fees can be categorized into:

  1. Transactional Fee – any fee related to the attributes of each transaction, ex) Cross-border
  2. Operational Fee – any fee related to the overall Program needs and function, ex) Location Services
  3. Compliance Fee – any fee related to compliance regulations that a Program must follow, usually only charged in the case of non-compliance, ex) filing a late or incorrect Quarterly Report.

Understanding the network fees and costs allocation requires regular validation of the program processing data to optimise reconciliation and avoid any unnecessary losses due to non-compliance fees, for example.

So if every institution globally that offers cards has to pay these fees, why are they so hard to navigate? Well because the payments ecosystem is complicated, with countless variables possible for every single transaction. To support the growing card systems, the Networks must support hundreds of different Event and Services, all of which have a cost, passed through to the banks and BIN Sponsors. With all the other work required to manage operations, it’s nearly impossible for anyone to sift through the codes and understand what they are actually for; more often than not, it’s simply regarded as a cost of doing business that can’t be optimized.

The truth is though, that it CAN be optimized! Using the power of data. Depending on your program, not all fees may apply, or perhaps certain repeated non-compliance issues simply need to be resolved to save thousands of dollars per month. All that’s needed is a little help from PayTic. With a simple review of the data, PayTic can provide a deep analysis of the Network fees paid by any bank, fintech or BIN Sponsor for their programs. By comparing the Program activity to the invoice, PayTic can highlight exactly what fees are appropriate, optional, require attention, or can be optimized to save money right away.

Reach out to us and see how we can help identify areas of optimization, eliminate your manual review work, and streamline your communication with your Network.

See more information about our Scheme Fees feature here