The Merchant's Side of the Ledger

Almost everything written about payments takes the consumer’s perspective. Tap the card, see the confirmation, move on. From that angle the system looks close to solved, and the remaining complaints are about fees.

The merchant’s view is a different problem. A merchant is not trying to make one payment work. A merchant is trying to understand, at the end of a month, why the amount that arrived in the bank account does not match the amount of business that was done.

The gap between sale and deposit

Between a completed sale and money in a merchant’s account, several things happen that the merchant did not choose and mostly cannot see.

Some transactions are authorised but not captured. Some are captured but held. Some are refunded, some disputed, some reversed weeks later. Fees are deducted, sometimes as a percentage, sometimes as a fixed amount, sometimes as both, and sometimes at rates that depend on the card type in a way that is not visible at the point of sale.

The result is that a merchant with a thousand transactions in a month receives a settlement figure that requires real work to explain. Larger merchants employ people to do this work. Smaller merchants generally do not, and simply accept that the number is the number.

Why this persists

It would be easy to read this as a failure of transparency, and there is some of that. But the deeper reason is structural. The merchant is not a party to most of the arrangements that determine what they are paid.

Interchange is set between networks and issuing banks. Scheme fees are set by the networks. The acquirer’s margin sits on top. The merchant sees a blended rate that is the output of three separate negotiations they were not in. Explaining that number completely would mean explaining the entire industry.

There is also a timing problem. The fee that applies to a transaction may depend on information that arrives after the transaction. A card that appeared to be one product turns out to be another. A transaction that qualified for one rate fails a condition and is downgraded. These adjustments arrive later, in aggregate, and reconciling them backwards is genuinely difficult.

What merchants actually want

In my experience, merchants are less bothered by the level of fees than by the variance. A predictable cost can be priced into a business. An unpredictable one cannot.

What they want is not usually a lower rate. It is the ability to look at a settlement figure and understand it without a spreadsheet. It is knowing on Tuesday what will arrive on Thursday. It is a dispute process that resolves in days rather than months.

These are not pricing problems. They are information problems, and they are considerably more tractable than the pricing ones, because they do not require renegotiating anything with the networks. They require the acquirer to expose what it already knows.

That is the part of this industry I find most interesting. The hard economics are mostly fixed. The information layer on top of them is not, and it is where most of the remaining improvement lives.