Scheme Fee
Scheme fees are the charges the card networks — Visa, Mastercard and their peers — levy on the acquirers and issuers that use them: assessments as a percentage of volume, per-transaction fees for authorisation and clearing, cross-border and currency assessments, and charges for services and programmes. They are the network's revenue, distinct from interchange, and they have risen as the regulated part of card costs was capped.
- Also known as
- Network fee, Card scheme fee, Assessment fee
- Used at
- every card transaction — paid by the acquirer (and passed to the merchant) and by the issuer; visible on an interchange-plus statement as a separate line, invisible inside a blend
- Binding
- the schemes' rules and fee schedules, changed twice a year; acquirers pass them through under most merchant agreements
- Typical levels
- 0.1–0.2% of volume in total for domestic transactions in Europe, plus a few cents per transaction; higher for cross-border (0.4–1% assessments), currency conversion, and premium products; US assessments of about 0.13–0.14% plus per-item fees
- Typical trend
- regulators in the UK and EU have found scheme fees rose sharply after interchange was capped — the UK's Payment Systems Regulator reported increases of more than 30% in real terms between 2017 and 2023 — and are reviewing them
- Parties
- the schemes, acquirers and issuers as members, merchants who bear the pass-through, and the regulators examining the schemes' pricing power
How scheme fees work in practice
A merchant's €100 transaction runs through Visa. Visa charges the acquirer a volume assessment (a few basis points), an authorisation fee (fractions of a cent), a clearing and settlement fee, and, if the card is foreign, a cross-border assessment; it charges the issuer its own set. On an interchange-plus contract the acquirer passes its scheme fees to the merchant as a line item — "Visa fees €0.05"; on a blend the fees are inside the rate. Twice a year the schemes publish fee changes, usually upward and usually with a new fee for something — a programme, a data service, a security standard — that acquirers must implement and pass on.
The fees are the schemes' business model and the least visible part of a merchant's costs. Interchange goes to issuers and is regulated; the acquirer's margin is competitive; scheme fees go to the network, are set by the network, and face no competition on a given transaction — a merchant that accepts Visa pays Visa's fees. Regulators noticed after the interchange caps: the UK's PSR and the EU's authorities have examined why scheme fees rose while interchange fell, and remedies are under discussion.
For an acquirer or a PSP, scheme fees are a pass-through that becomes a margin problem on blended contracts: every increase the merchant does not see is one the provider absorbs until it reprices.
Example
An acquirer processes €20bn a year at a blended net margin of 0.12%: €24m. Over four years the schemes raise fees by an average of 0.04% of volume — €8m a year at the acquirer's scale. On its interchange-plus merchants (60% of volume) the increase passes through automatically; on its blended merchants (40%) it does not, and the acquirer's margin on that book falls from 0.9% to 0.8% until the next repricing cycle, which takes eighteen months and costs it 4% of those merchants to competitors who priced the increase differently. Its finance team adds a scheme-fee escalator to the blended contracts; its regulator's review of scheme fees is the only thing that would give the money back.
Common mistakes
- Merchants reading scheme fees as part of interchange, and negotiating with the wrong party. - Blended contracts with no escalator for scheme fee changes. - Acquirers implementing a scheme's new fee without passing it through, and discovering it in the margin. - Assuming scheme fees are small; on cross-border transactions they can exceed interchange. - Modelling a payments company's margin without the schemes' twice-yearly changes.