merchant service charge
The merchant service charge (MSC) is the fee a business pays its acquirer for accepting card payments. It bundles interchange, scheme fees and the acquirer's own margin, usually expressed as a percentage of each transaction, sometimes with a pence-per-transaction element on top.
The MSC is the headline number on an acquiring contract, and the number most comparisons are built on. It is made of three parts: interchange, which goes to the cardholder's bank; scheme fees, which go to Visa or Mastercard; and the acquirer's margin, which is the only part the acquirer actually sets.
Why it matters: an MSC quoted as a single blended rate hides which part is cost and which is margin. The PSR's card-acquiring review found that merchants with annual card turnover under £50 million rarely switch, partly because they cannot compare what they are paying. The regulator's remedies now require summary boxes and trigger messages so that a small merchant can see the charge and knows when the contract can end.
For a software platform setting its own fee under a regulated-partner model, the MSC is what the platform's customers currently pay elsewhere, and therefore the number a group offer has to beat or match. Collect it customer by customer; the spread across a platform's customers is usually wide.
Sources
- Payment Systems Regulator, Market review into the supply of card-acquiring services: final report (MR18/1.8), 3 November 2021
- Payment Systems Regulator, Financial services firms need to make merchant service charges more transparent, 3 November 2021
- UK Finance, response to the PSR card-acquiring market review working paper on pass-through (describes the merchant service charge and interchange as an element of it), 30 June 2020