You may have noticed that there are a number of Australian Payment Gateway companies now offering similar deals to Paypal in terms of flat Merchant Service Fee (MSF) pricing similar to Paypal. So what does this mean for you the merchant? This article explains what you should think about when deciding what is best for you.

Let's get started

First it is best to explain that some banks have recently started to also compete in this space, albeit with a different model. In the past and still to this day, if you wanted to sign up with an Australian Payment Gateway you would need an internet merchant facility (IMF) with a bank. Often the bank itself would have a similar facility so the payment gateway competes directly with the banks offering.

Banks have traditionally in the past offered a very basic model. They judge your business, card mix and make an assessment on the rate (MSF) they will charge. The reason for this is that all banks have to pay an "Interchange Rate" (IC) to the scheme holders Mastercard and Visa and this is directly based on card type. These rates are published on

http://www.mastercard.com.au/merchant/getting_started/interchange_rates.html

The advent of points based, gold and platinum cards does not come free. The cost is now to the merchant, that is those "premium" cards are charged differently to recover costs associated with the card offering.

Let's say that they think your card mix is predominately domestic cards that are not premium, you might be offered an all in one MSF of say 1.6% even though the bank might lose money on international cards as the IC is 1.9%. The bank will hedge that you have a lot of domestic cards whereby the interchange rate is 0.33% and this is where the bank can make it's money.

This is exactly how Paypal works. You may have noticed that Paypal also does an "All in one" MSF. Currently at 2.6% + 30c with 3.6% + fixed fees for international cards. Paypal also has to pay the "scheme" rates (IC) that Visa and Mastercard demand. This is because Paypal doesn't want to risk losing money on the plenty of international cards that will often be in the mix for its merchants. Paypal is one of the most expensive services in this regard and is best avoided for serious trading.

So back to the Australian situation. As explained, banks have in the past given you a fixed rate then hedged the IC to make money. A lot of banks will now give you a choice. You can go for a monthly set fee (or minimum MSF) - say $20-$30 and have a fixed rate at 1.4-1.6%. Others like ANZ are now offering 2 choices - the traditional model just explained or an IC based model. The IC model will typically have no monthly fees and a variable MSF depending on the IC. For example a domestic card will typically attract a 1.6% MSF going up to an international card with an MSF of just over 3%. Compared against an all in one Paypal type of charge of 2.6% (and international cards 3.6%) , this is quite attractive as you have all the benefits of taking cards with a real bank with settlement of funds into your bank account that day - unlike Paypal.

You might have noticed that a number of Payment Gateways, such as Securepay and eWay are now offering something similar to Paypal. You "dont" need a merchant account and we will sign you up in "minutes". This is not true and these claims shouldn't be allowed to be advertised. In fact all these facilities are being underpinned by NAB and other banks may offer these wholesale services to Payment Gateways in the future. You still have to go through a NAB vetting procedure, answer quite a few questions about your business including income and sign forms. The procedure is advertised as 3-5 days but in reality takes weeks. Especially if you don't have a website with TCs, refund policys etc or are doing any prepaid services like holiday bookings and the like. At the end of the day you end up with a merchant account with NAB that has no monthly fees.

The Payment Gateways offering these "no merchant account" facilities typically go for a fixed 2.4% rate + 30c transaction fee. They are also hedging that you will have lots of classic domestic cards in the mix and can make some money off the mix. Fair enough, as they have to make some money! Securepay offers this at 2.4% + 30c with higher charges for international cards as an example. Please be aware that NAB charges the merchant 10c for each transaction regardless of what the payment gateways advertise as their transaction charge. This is to recoup the 4c charge First Data International charges them to provide the switch into the bank for the 3rd party gateways. Ensure that the transaction rate includes the 10c charge - this might mean that an advertised 30c charge encompasses a 10c charge directly from NAB plus a 20c charge from the payment gateway.

One really good deal is being offered by SCNet. Advertised at 1.63% (higher for premium cards) for standard domestic cards + 25c transaction fee this is the cheapest rate we have seen. It looks like SCNet have taken the decision to not profit off the standard cards and have based their rate on the interchange rate (IC). When looked at in a broader sense, we believe this is a more transparent and fairer model to Paypal and Securepay and certainly the one we recommend.