As a small or medium-sized enterprise (SME) in Singapore, accepting credit and debit cards is vital for growth. It’s how you meet customer expectations, increase sales, and compete in a digital-first market. But with every card payment comes a cost: credit card merchant fees.
For an SME, where every dollar counts, these fees can seem like a complex and unavoidable drain on revenue. What exactly are you paying for? Why do the rates change? And how can you manage these costs without sacrificing sales?
This guide is designed specifically for SMEs to answer these questions. We will break down merchant fees into simple, understandable components, explain the different pricing models, and provide practical strategies to help you manage these costs effectively, turning a necessary expense into a transparent and predictable part of your business operations.
Key Takeaways
- What They Are: Merchant fees are what an SME pays for each card transaction, usually charged as a percentage of the sale value, also known as the Merchant Discount Rate (MDR).
- The Three Main Costs: This fee is a bundle of three parts: the Interchange Fee (goes to the customer’s bank), the Card Scheme Fee (goes to Visa/Mastercard), and the Acquirer’s Markup (goes to your payment platform).
- Simplicity is Key for SMEs: For most SMEs, a Blended Rate pricing model is ideal. It offers one predictable fee for all card transactions, making it much easier to manage finances than complex Interchange-Plus models.
- Costs Aren’t Fixed: The fee for a transaction can vary based on factors like the type of card a customer uses (e.g., a premium rewards card costs more to process) and your business industry.
- You Can Manage These Costs: By partnering with a transparent payment platform and encouraging customers to use low-cost options like PayNow, SMEs can effectively control their payment processing expenses.
What Exactly Are Merchant Fees? A Simple Breakdown
When a customer pays your SME with a credit or debit card, a small percentage of that sale is deducted as a fee. This fee covers the entire ecosystem required to process the payment securely and instantly. It is made up of three distinct parts.
1. The Interchange Fee
This is the largest part of the fee, typically 70-80% of the total cost. It’s collected by your payment platform and paid to the customer’s card-issuing bank (like DBS, UOB, etc.). It compensates the bank for the risk it takes on and the costs of services like fraud protection and rewards programs. This is why a high-rewards credit card has a higher interchange fee than a simple debit card.
2. The Card Scheme Fee
This is a smaller fee paid to the card network, such as Visa or Mastercard. It’s the cost of using their global payment infrastructure that connects all the banks and businesses.
3. The Acquirer’s Markup
This is the fee charged by your payment partner, like Razorpay Singapore. It covers the cost of the technology, security (PCI DSS compliance), fraud detection tools, and customer support they provide to your SME.
Choosing the Right Pricing Model for Your SME
How these fees are presented to you is determined by the pricing model. For SMEs, choosing the right one is critical for financial planning.
Blended Rate Pricing: The Best Choice for Simplicity
This is the most common and recommended model for SMEs.
- How it Works: The payment platform bundles all the variable costs into a single, consistent rate for all card transactions.
- Why it’s Good for SMEs: It’s predictable. You know exactly what you’ll be charged for every sale, which makes bookkeeping and financial forecasting straightforward. There are no surprise costs at the end of the month.
Interchange-Plus (IC+) Pricing: Complexity for Large Corporations
This model separates the interchange fee from the acquirer’s markup.
- How it Works: You pay the exact interchange fee for each transaction, plus a fixed markup from the processor.
- Why it’s Not Ideal for SMEs: It’s highly unpredictable. Since the interchange fee changes with every single card type, your costs will fluctuate constantly, making your monthly statements complex and difficult to analyze without a dedicated finance team.
Did You Know?
Your Business Type (MCC) affects your fees. Every business is assigned a Merchant Category Code (MCC) that classifies its industry.
Industries with lower fraud risk, like supermarkets, often have lower interchange rates than higher-risk industries like online gaming or travel agencies.
Actionable Strategies for SMEs to Manage Merchant Fees
While you can’t eliminate merchant fees, you can be smart about managing them.
- Choose a Partner with Transparent, Blended Rates: Select a payment platform like Razorpay Singapore that offers a simple, blended rate. This ensures you get predictable costs without hidden fees, allowing for better financial management.
- Offer Low-Cost Payment Alternatives: In Singapore, PayNow is a powerful tool for SMEs. Because it’s a direct bank transfer, it bypasses the card networks and avoids the high interchange fees. Encouraging customers to use PayNow can significantly lower your average transaction cost.
- Focus on Preventing Chargebacks: A high number of chargebacks can increase your processing fees. Ensure you have clear product descriptions, good customer service, and a fair refund policy to minimize disputes.
- Consolidate Your Payment Volume: If you use multiple payment providers, consider consolidating to one. A higher total processing volume can give you more leverage to secure a competitive rate from your payment platform.
Ready to Simplify Your Payment Fees?
Focus on running your business, not on deciphering complex fees. A transparent payment partner can make all the difference.
Learn how Razorpay Singapore can provide your SME with clear, predictable pricing.
Conclusion
For an SME in Singapore, credit card merchant fees are a necessary investment to access the digital market. The key is to treat them not as a mysterious cost, but as a manageable expense. By understanding what you’re paying for, choosing a simple pricing model, and partnering with a transparent payment platform, you can ensure that your payment processing costs are optimized, predictable, and support your business’s growth.
Frequently Asked Questions (FAQs)
As an SME, is it cheaper to accept debit cards than credit cards?
Yes. The interchange fee for a debit card transaction is almost always lower than for a credit card because the issuing bank takes on less risk. A payment platform with a blended rate averages these costs, but the underlying difference is a key reason why debit is more cost-effective to process.
Can I pass merchant fees on to my customers?
This is known as surcharging and is generally prohibited or strongly discouraged by the major card networks’ rules. The best practice is to factor your processing costs into your overall product pricing rather than adding a separate fee at checkout.
Do I have to pay merchant fees for PayNow transactions?
No. PayNow transactions do not have the same merchant fees (MDR) as card payments. They typically involve a very low, fixed fee because they are direct bank transfers and do not use the card network ecosystem.
