May 4, 2021


How to Lower Merchant & Card Processing Fees

As a merchant, card processing fees can take a big chunk out of your revenue. With more people shopping online than before, these fees quickly add up – which is why finding a cheaper way to process card payments has the potential to immediately lower costs and boost revenue.

Mode | Merchant Fees: Payment Gateway Lower Transaction Fees

Written by Araminta Robertson.

As a merchant, card processing fees can take a big chunk out of your revenue. Merchants often have limited choice when it comes to taking payments; it’s either accept expensive online card payments, or don’t make a sale. With more people shopping online than before, these fees quickly add up - which is why finding a cheaper way to process card payments has the potential to immediately lower costs and boost revenue.

The good news is that with new payment technologies such as Open Banking and APIs, taking online payments can save you up to 97% in merchant fees!

What fees do merchants pay?

How many fees are you paying as a merchant in the UK? Here are just a few of them:

Payment gateway fee: if you’re accepting payments online, you’ll be using a widget called a payment gateway. Payment gateways encrypt payment information and ensure security, as well as a smooth payment process.

Card network fees: these are the fees a business pays to Visa and MasterCard in order to accept card payments. It’s no secret that these fees are high, and percentages vary depending on the type of card and payment method. In 2021, Visa and MasterCard both announced an increase in fees off the back of Brexit. These are now as high as 2% for consumer purchases.

Compliance fees: in order to take online payments, you need to meet certain compliance regulations and pay for certification.

Chargebacks: every merchant’s headache: these chargebacks are forced refunds. Not only do businesses need to provide a refund to their customers (which could be fraudulent), but they also need to pay a fee - often as high as 1% - to the card networks.

Additional fees: there are many other fees that come with processing payments, such as annual fees, set up, maintenance, POS terminals and minimum monthly supplier fees.

As a merchant, the fees pile on and you often wonder if it’s worth taking online payments at all. The good news is that yes, it is still worth it - but the key is to use a much more efficient payment technology.

How to lower fees with Open Banking

According to a survey by BRC, cards account for 61% of all retail transactions, but take up 83% of retailers’ cost of collection. The fees are unnecessarily high, and as we mentioned above, they are only increasing. Open Banking offers a solution that is cheaper and simpler than the lowest card processing fee.

How Open Banking works

Open Banking is a framework that essentially enables secure financial data sharing between banks, financial institutions and third parties. With Open Banking, your customers purchase your products through a direct bank transfer.

Usually this is a highly manual process that involves inputting details manually through a banking app. But with Open Banking, third party providers, like Mode, can integrate your customer’s bank account into a payment gateway - which means every step is automated from start to finish.

With Open Banking, you and your customers can ditch the debit and credit card and use a bank account to make payments, enabling businesses to skip many of the intermediary fees mentioned above.

Why it’s cheaper

With bank transfers, you are able to bypass expensive middlemen such as card networks and card machines. That’s why many industries are saving millions of pounds every year with Open Banking. According to estimates, the eCommerce sector in the UK could save £74,040,000 per year with Open Banking payments!

Forget about expensive card network fees. With Open Banking, merchant fees are considerably lower - with Mode, that’s just 0.5%.

Merchant card processing fees

Other benefits

In addition to being a lot cheaper, Open Banking comes with a whole host of other benefits. Here are some of them:

Better UX: although consumers are used to it at this point, the process of taking out your debit card and typing in your card number is not actually very intuitive. With Open Banking, customers can forget about this manual step. Instead, they simply select their bank account, authenticate with their thumb, face ID or PIN, and the payment goes through.

More secure: did you know Card Not Present (CNP) fraud accounts for 76% of all payment fraud losses in Europe, projected to cost companies $40.62 billion in 2027. That’s because CNP payments are incredibly hard to trace back and authorities often don’t prioritise resolving disputes.

It’s incredibly hard for fraudsters to hack into a bank account due to the intense security measures banks have in place to stop unauthorised bank account logins. This makes Open Banking payments a lot more secure and customers are substantially less likely to be victims of fraud.

No more chargebacks: chargebacks involve a customer asking you for a refund through the card network. Disputing chargebacks is time and energy-consuming, and many fraudsters count on the fact that merchants won’t have the resources to stop the refund.

With Open Banking, you remove the card network. That means, no more chargebacks! If your customer demands a refund, you handle it yourself and can therefore ensure it isn’t a fraudulent chargeback. On top of this, the process is also far less time consuming than relying on the card network.

Personalisation: by integrating your payment gateway into your customers’ bank accounts with Open Banking through Mode, merchants can learn more about customers (with their approval). This opens the door to personalised loyalty programmes such as cashback, tailored discounts and rewards, helping to increase customer retention and brand loyalty.

On top of this, the merchant could use the savings to reinvest in improving the relationship with their shoppers, and driving loyalty.

Getting started with Mode

If you’re looking for ways to lower card processing and merchant fees, Open Banking is an optimal solution. Businesses are able to benefit from reduced costs, lower rates of fraud and can offer a much more personalised and secure experience to their customers.

At Mode, we help merchants get started with Open Banking payments through a payment gateway without monthly fees, specifically for UK merchants. We’re a payment service provider that manages the entire payment process from start to finish. With us, your customer pays through the Mode app, just like they would using any other payment method - except it’s a lot more seamless.

Instead of the lengthy process of card payments, Open Banking payments are a lot more straightforward. Check out our demo video for an example of how the customer experience would look like when they pay with Mode:

Payments and Loyalty Made Easy with Mode - Product Demo - YouTube

If you’re a merchant that is looking to decrease the cost of online payments and take advantage of the growth in eCommerce, Open Banking payments provide an excellent solution. Ready to get started? Become one of our launch merchants today and claim your spot at the forefront of the next wave of payments, powered by revolutionary Open Banking technology.

Download Mode and get ready for the future!


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