How to Avoid Common Online Payment Fees

When sending or receiving money online in exchange for goods, we often encounter processing fees. These fees are usually the intermediaries that are facilitating the purchase and want a reward for letting us use their safe infrastructure.

We can collate payment fees into one group from the buyer and the seller's side. This is because who pays the fee isn't particularly important, as it will likely be reflected in the price of the product. For example, if Shopify suddenly abolished transaction fees from their platform, the price-cutting race would likely continue as there would be more room to gain a seller's advantage whilst retaining the same profit margins. Whilst some online transaction fees cannot be avoided (like Shopify's), we can look at some other fees where there are alternatives.

Visa and MasterCard Fees

In 2021, the average MasterCard fee ranges from 1.29% + $0.05 to 2.64% + $0.10 - and although Visa fees can often be cheaper, they're both very similar. This is usually a fee that the merchant pays when receiving card payments for their goods or service. MasterCard and Visa essentially charge for processing the transaction.  

Usually, accepting debit card payments will reduce the fee down from the credit card fee. There are services such as Vyne (among others) which offer an alternative option for the shopper, a “pay by bank transfer by Vyne”. This will open up their Vyne app with the purchase details and allow for a faster payment without MasterCard fees.

International Transfer/Conversion Fees

Sending money abroad often comes at a cost, even if you're doing a simple, personal bank-to-bank transfer - let alone a commercial transaction. Let's take a unique example of an American tourist staying in New Zealand with a desire to play online casino games at Casumo casino. He would likely need to deposit in NZD but only has USD. If he opts for the MasterCard or Visa method, he will pay a Network fee to convert the currency and a typical bank issuing fee.

However, sometimes these are unavoidable and are actually preferable to alternative methods. MasterCard currency conversion fees are around 1% regardless of the type of credit card. Given that convenience (and security!) is important to customers, we would most likely stick with MasterCard in this scenario, though in the Casumo example, it's worth checking other payment options, like MuchBetter (which they accept) that might offer lower fees while charging 0.99% for the currency conversion.

As we discuss in the next section, we can sometimes avoid the conversion element by having an overseas virtual debit card.

Exchange Rate Spread 

Whether the buyer sees the fee or not, just know that when purchasing overseas from eBay, Amazon, or almost anywhere, you will likely be wasting a tonne of money on poor exchange rates. Sometimes, the exchange of currency isn't customer-facing, but it's still very much there. 

One way sellers can avoid this for the sake of themselves and their customers is to open up virtual overseas bank accounts that can receive money in the payer’s domestic currency. This way, no money has been exchanged, and the seller can then exchange it later on their own terms. This can be done on a money transfer company that will offer significantly smaller spreads than Paypal and the like

Likewise, buyer's also encountered these fees when buying at say, a US store from the EU or NZ, and could also use money transfer companies to open a foreign account. This way, they can exchange their money prior to the transaction, and now the payment becomes a domestic one.

Is Cryptocurrency the Answer?

In each of the three examples above, cryptocurrency would resolve the issue in theory. There would be no conversion upon overseas payments, and no transaction fee for sending money. Though, this isn't to say it's the answer yet. With prices so volatile, the exchange to and from our own fiat currency would be a quick way to lose a lot more money than a simple MasterCard fee. Plus, most merchants aren't yet accepting crypto as payment.

When this becomes normalized, and the day that prices become more stable (or that you've lost the need for fiat currency), then we can seriously consider crypto as a go-to for online payments. Furthermore, whilst PayPal fees are exorbitant, it's super safe for buyers to pay through them as they're covered in the event of a refund. Of course, crypto has little answer to this - unless Ethereum's smart contracts, or similar, can be effectively developed to protect customers.