As the use of cash is declining around the world, the world of online payments is getting increasingly sophisticated. Instant payments, one-click transactions and mobile wallets are all making it easier than ever for customers to buy goods and services online quickly and effortlessly. Technologically advanced payment platforms are proliferating, and offering services to merchants with added value, such as software integrations and data analysis.

It can be easy to get overwhelmed by all these options and possibilities, and lose focus on the most basic measure of success for any business: profitability. At the end of the day, the more that payment providers charge, the more the business will need to make to maintain its bottom line.

To ensure a healthy profit margin, it’s crucial to understand the hidden fees that payment providers can – and often do – charge. While some of the costs of payments are easily identifiable, others are not clear upfront. They may be obscured within complex fee structures or buried in small print.

In this article, we’ll dive deep into the different types of hidden payment fees, so that businesses and individuals can make a smart choice when it comes to digital money transactions, whether it’s choosing a payment provider or simply sending funds.

Common sources of hidden fees

For individuals or businesses deciding how they want to send or receive money, the most important payment fees they should be aware of are international transaction fees. Cross-border payments can be much more expensive than domestic transactions, particularly when using an electronic wire transfer via a traditional bank.

When paying or receiving funds in a foreign currency, people should be also aware that the exchange rate used by banks can be several percentage points higher than the standard interbank rate at which banks lend to each other. 

For businesses that are deciding which payment provider they want to use to enable their payment processes from collecting payments, making payments or holding funds - there are many potential fees to consider. This is especially critical if you are a business that collects from and makes payments to countries outside of your own. 

PCI compliance fees: Businesses are required to ensure that customers’ financial information is secure and protected when processing transactions, in order to meet payment card industry (PCI) standards. Some payment processors and merchant service providers impose this fee on businesses for ensuring that the service and business remains PCI compliant. Others may not charge an additional fee for this service.

Monthly minimum fees: Some payment processors charge a fee if a business fails to meet a minimum processing volume, while others don’t have this fee structure in place. It’s best to check these requirements and your business’s transaction volumes before putting any agreement with a payment provider in place.

Statement fees: Some payment processors can charge statement fees for providing transaction reports and statements. They may be low, but when added to other hidden costs, they can start to chip away at a business’s bottom line.

Early termination fees: Sometimes businesses don’t realise that the payment provider they’ve chosen doesn’t put them in the best position for success until they’ve already agreed to a contract. Cancelling a contract before it expires can involve early termination fees, so it’s worth putting in an appropriate amount of time to research options before signing up.

Interchange fees: Also called swipe fees, these are the charges that merchants have to pay to card issuers every time a card transaction happens. Although they are likely to be an obvious part of the fee structure, rather than hidden away, it’s worth pointing out that interchange fees have been increased substantially by some card networks in recent years, and some merchants have been passing on this extra cost to customers.

International transaction fees and inflated FX rates: It’s not just consumers that can get stung by over-the-top fees for cross-border transactions. On top of international transaction fees, which may be clear upfront, many payment services use an FX rate for currency conversions that is significantly higher than the basic interbank rate. Look for specialist global payment platforms like Airwallex, which uses the interbank rate for currency conversions and even allows businesses to hold money in multiple currencies, helping them avoid unnecessary conversions altogether.

Chargeback fees: If a customer disputes a transaction and requests a refund, payment processors can pass on an administrative fee for managing the process, called a chargeback fee. The likelihood of this happening can be reduced through various methods, and some payment processors may offer services that can help minimise chargebacks, however it’s good to be aware of them going into an agreement.

Impact of hidden fees

When businesses are charged more than expected for payment services, there is often little choice but to pass on these extra fees to the consumer. However, this can impact customer loyalty and trust.

In addition to this, some governments are cracking down on fees that are added to online transactions at the end of the checkout process. In early 2024, the UK announced a planned ban on “drip pricing”: the practice of showing an initial price for a good or service, and then revealing additional fees later in the checkout process. Other countries and regions such as the European Economic Area, Australia, and the United States already have some drip pricing bans in place.

This means that any additional fees would have to be added to the price of consumer goods upfront, which could put the business at a competitive disadvantage and have a negative impact on sales.

Tips to avoid hidden fees

With a good understanding of hidden fees and payment processing fee structures under your belt, it’s possible to reduce their impact significantly. Consider the following methods for reducing the hidden costs of payments:

• Look for simple, transparent pricing plans, with clear disclosure of all fees upfront. If you’re uncertain whether the provider you are assessing is being transparent, don’t be afraid to talk to a customer representative and ask them directly.

• If you are a large company with a high transaction volume, it may be possible to negotiate payment processing fees. Again, talk to a representative.

• Monitor transactions closely once an agreement is in place and check billing statements for any unexpected charges. That way, any unexpected charges can come to light as quickly as possible, and financial operations tweaked accordingly.

• You may be able to minimise fees by nudging customers in the direction of a payment method that has lower associated charges.

• A multi-currency account that gives you local bank branch details in foreign countries, can help you lower cross-border transaction and currency conversion fees.

The importance of proactive financial management

It can be tempting to take the path of least resistance when it comes to payments. There are methods that we are all familiar with, such as wire transfers through banks, and big payment platforms with high brand-name recognition. However, it’s important to understand that the world of payments is evolving, and the cost savings associated with making a well-informed choice can be substantial. 

Forward-looking businesses with global ambitions should be proactive in researching options that meet their needs, especially when it comes to potentially pricey cross-border transactions. Technologically advanced payment solutions such as Airwallex can allow businesses to cut their bills while providing additional services that can streamline their financial management process.

Transparent, cost-effective pricing with Airwallex

Airwallex offers a secure, transparent, cost-effective alternative to legacy banking. Businesses can operate like a local from anywhere in the world with multi-currency Global Accounts that allow you to have local branch details. You can accept payments in local currency to avoid costly forced conversion fees, hold funds in a multi-currency wallet, convert currencies at interbank rates, and make high-speed transfers around the world in a few clicks.

Built-in expense management software allows businesses to monitor and analyse transactions in real time, reducing the costs associated with fraud and ensuring that no unexpected activity takes place. Extra services such as built-in expense management and software integration help speed up the accounting process and free up your team’s time.

Don't let hidden fees catch you by surprise. Learn how you can take control of your finances with Airwallex here.