Card payment fees: are they legitimate?

Almost all lowcost airlines charge credit or debit card payment fees when we book a flight. Given that we normally use our credit card without having to pay a fee, why should we pay anything extra to lowcost airlines? Are these fees legitimate?

When a traveller purchases a flight ticket with Ryanair, he gets charged an Administration Fee of 6£/€ per segment (per passenger/ per one-way flight). According to the lowcost airline this fee “relates to the costs associated with Ryanair’s booking system” and applies to all credit card payments, with the exception of bookings paid for by MasterCard Prepaid Debit Card. At this point, the first question that pops up in my mind is: what is so special about the MasterCard Prepaid Debit Card? Why do these payments have zero fee?

If you intend to travel with EasyJet, you have to pay a £8 booking fee on all transactions, except for payments with Visa electron and Carte Bleue (domestic transactions only) which are free. And this is not all: credit card payments (Visa, MasterCard, Amex, UATP/Airplus) will incur an additional fee of 2.5% of the total transaction value, with a minimum charge of £4.95, whichever is greater. So, you end up paying a minimum fee of £13 if you use your credit card to buy the tickets.

Airberlin and Germanwings do not charge any payment commission.

WizzAir passengers are charged a booking fee of 4£/5€ if they pay by Credit/Debit Card or 2£/2,5€ if they pay by Bank Transfer. They can also buy their tickets via call centre, for a booking fee of 9£/10€. This fee is calculated per flight, per passenger. The reason why the airline charges a lower fee for bank transfers, if probably the fact that there is a much lower fraud rate on bank transfers as compared to credit card payments.

Flight tickets booked with Flybe are subject to a transaction fee of 4,5£/5,5€ per one way journey when booking online, via call centre or at the airport. For credit card payments, there is a 1€ extra-charge per one way journey.

Therefore, most European lowcost airlines charge travellers a mandatory fee that is not included in the upfront ticket price. Below is the summary of the total transaction fees that must be paid by a family of 4 buying return tickets. I looked at 2 ticket prices: £50 and £100 per person.

AirlineTicket pricePayment fee
Ryanair£50,00 x 4£48,00
£100,00 x 4
£48,00
EasyJet£50,00 x 4£18,00
£100,00 x 4
£28,00
WizzAir£50,00 x 4£32,00
£100,00 x 4
£32,00
Flybe£50,00 x 4£40,00
£100,00 x 4
£40,00

If we think about the business model used by discount airlines and understand the fact that they try to externalize all the “non flight-related” costs, it may make sense for them to have the customer cover the payment transaction fee. But, in this case, how come transaction fees differ so much from one airline to the other?

Which is their actual transaction cost?

Let’s analyse the regular credit card acceptance fees.
Every bank has its own transaction fees which vary from one customer to another according to the transaction volume and to the type of contract. That’s why, most banks don’t publicly disclose their fee ranges. The commissions lowcost airlines have to pay depend on their own contract with their bank, so it is difficult to estimate the fees they would have to pay.

What we can do, though, is check the merchant fees charged by some of the main online credit card processors.

1. Sage Pay currently has an offer of £20 per month if you have up to 1000 transactions a quarter and 10p/transaction, if you exceed this limit. This means 6p/transaction for the first 333 transactions in a month and 10p/transaction for the rest. In order to use this gateway, you need to have an internet merchant account. This will involve an additional processing fee of 2.5% for the credit cards or 40p for debit cards, regardless of the card type.

2. WorldPay.com offers a bundle of payment gateway and merchant account at 3.95% of the value of all transactions (e.g. credit and debit cards) plus a €20 monthly fee.

3. Paypal offers a full package for small and medium business. The commissions for medium businesses are not published, but the ones for the small ones amount to 1.4%* + 20p per transaction, with a £20 monthly fee. This applies to domestic payments in UK Sterling. There’s an additional 2.5% charge for any currency conversion and a 0.5% charge in order to receive payments from another country.

Let’s do the math and see what how much an airline would have to pay to the 3 card processors above, on the amounts we took as an example above (£400 and £800).

ProcessorPaid amountFee
Sage Pay£400,00£10,10
£800,00£20,10
WorldPay£400,00£15,80
£800,00£31,60
Paypal£400,00£17,80
£800,00£35,40

From the above table, we can see that an airline would not have to pay more than £15 in commissions on a £400 payment, or £30 on a £800 payment, respectively.

The low cost airline that comes closest in terms of transaction fees to the amounts calculated above is Easyjet, which charges only a few £ more than the lowest acceptance cost. In this case, the difference can be explained by the internal processing costs that EasyJet may have (other bank fees, payment validation and clearing, accountants, etc).

On the other hand, RyanAir charges a £48 commission even on the cheapest tickets. So, if you buy 4 return tickets that cost £50 /person/flight, RyanAir may charge you a booking fee more than 2.5 times larger than the actual card acceptance cost they have.

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