Dues and assessments

What you will learn

  • What interchange is
  • What an interchange downgrade is
  • What dues and assessments are
  • What an acquirer’s mark-up is

What you should read first

Full article

This is part 2 of 4 of the fees article. Here are links to each part:

Introduction

In the previous part, we discussed what an interchange fee is. Remember that interchange is paid to the cardholder's issuing bank.

This part covers the dues and assessment fees which are paid to the card association that the cardholder's issuing bank belongs to.

Dues and assessments

Dues and assessments is calculated as a percent of the transaction plus a per transaction fee (e.g. 0.11% + $0.0195). It consists of separate charges for both the authorization and settlement of a transaction. We will explain authorization and settlement in great detail in our next article but for now it is enough to understand the following:

  • Authorization is when a merchant confirms that a cardholder has enough money in their account. The cardholder’s issuing bank will place a hold on this amount to ensure that the money will be available when needed to actually send it to the merchant. This confirmation happens through card networks.
  • Settlement is when an issuing bank sends money to a merchant on behalf of their cardholder. This transmission also occurs through card networks.
Dues and assessments
A fee paid to the card association that the cardholder's issuing bank belongs to. This fee consists of separate charges for both the authorization and settlement of a transaction.
Authorization (preliminary definition)
The process when a merchant uses a card network to confirm that a cardholder has enough money in their account.
Settlement (preliminary definition)
The process when an issuing bank uses a card network to send money to a merchant on behalf of their cardholder.

Each card association sets their own dues and assessments fees which are non-negotiable for the merchant. This fee is considerably smaller than most interchange rates because the card associations take on less risk than issuing banks. Most transactions are only charged the following dues and assessments fees for authorization and settlement:

Authorization:

  • Visa debit: $0.0155
  • Visa credit: $0.0195
  • MasterCard: $0.0195
  • Discover: $0.0025

Note that only Visa charges a different fee for debit and credit authorizations.

Settlement:

  • Visa: 0.11%
  • MasterCard: 0.12%
  • Discover: 0.105% + $0.0185

Visa charges an additional standard fee called a Fixed Acquirer Network Fee (FANF). We explain how the FANF is calculated in a later article but for now it is important to understand that it is a monthly fee based on the following factors:

  • Merchant type
  • Number of locations
  • Entry method
  • Visa sales volume

Dues and assessments fees have a mechanism similar to an interchange downgrade where transactions receive an extra fee if they are more likely to be fraudulent or if they require more work than normal from the card association. This fee is an additional amount on top of the fees for authorization and settlement. Each card association has its own fee criteria but they follow this same basic premise. The following are examples of these additional fees:

  • Accepting cards issued in a foreign country.
    • Visa charges 0.40% of the transaction size when the acquiring bank operates in a different country from where the card was issued.
  • Improper authorization procedures.
    • MasterCard charges $0.055 for every authorization that cannot be matched with a clearing record within 120 days of the initial authorization. The purpose of this fee is to make sure that all authorizations are either cleared to be settled or reversed by the issuing bank or its cardholder.
  • Requesting additional cardholder information.
    • MasterCard charges $0.005 for every time that a merchant requests verification of a cardholder's address when the card is present and $0.0075 when the card is not present.

In addition to the above there are fees that the card associations charge that change based on acquirer (defined in our next part):

Kilobyte Fee: This fee is a data transmission fee that is charged based on the number of kilobytes an acquirer sends over a card network.

  • Visa Kilobyte fee (aka Base II Clearing and Settlement Fee): $0.0025 per kilobyte
  • MasterCard Kilobyte fee: $0.0035 per kilobyte

Acquirer’s License Fee (ALF): This fee is assessed based on an acquirer’s previous calendar year MasterCard signature debit and signature credit volume.

  • MasterCard: varies but can be a low as 0.0042% or as high as 0.0156% of the acquirer’s MasterCard transaction volume.

What you should read next

References