Payment Processor Fees: Understanding and Reconciling Transaction Costs

Payment processing fees are a significant cost for any business that accepts cards. Yet many finance teams struggle to understand exactly what they're paying and whether those fees are correct. This guide explains the components of payment gateway fees and how to reconcile them effectively.

The Anatomy of Payment Processing Fees

Every card transaction incurs multiple fees from different parties in the payment ecosystem. Understanding these components is essential for cost management.

Interchange Fees

Interchange fees are set by card networks (Visa, Mastercard) and paid to the card-issuing bank. They're the largest component of processing costs:

• Typically 1.5% to 3.5% of transaction value
• Higher for rewards cards, corporate cards, and international cards
• Lower for debit cards and regulated transactions
• Vary by merchant category code (MCC)
• Include both percentage and fixed per-transaction components

Scheme Fees

Scheme fees (also called assessment fees or network fees) are charged by card networks for using their infrastructure:

• Typically 0.13% to 0.15% of transaction value
• May include fixed per-transaction fees
• Include network access fees, brand usage fees, and settlement fees
• Often combined with interchange in simplified pricing

Processor Markup

The processor's markup is their profit margin for providing payment services:

• Flat-rate pricing: Simple percentage (e.g., 2.9% + $0.30)
• Interchange-plus: Interchange + fixed markup (e.g., IC + 0.3% + $0.10)
• Tiered pricing: Different rates for qualified, mid-qualified, non-qualified
• Subscription pricing: Monthly fee plus lower per-transaction markup

Common Pricing Models

Flat-Rate Pricing

Companies like Stripe and PayPal typically offer flat-rate pricing. With Stripe, you might pay 2.9% + $0.30 for every transaction regardless of card type:

• Pro: Predictable, simple to understand
• Con: May overpay on low-cost transactions (debit, domestic)
• Best for: Small businesses, low volume, simplicity preference

Interchange-Plus Pricing

Enterprise processors like Adyen often use interchange-plus pricing. You pay the actual interchange plus a fixed markup:

• Pro: Transparency, lower costs on cheap transactions
• Con: Variable, harder to predict monthly costs
• Best for: High volume, diverse card mix, cost optimization focus

Tiered Pricing

Traditional merchant accounts often use tiered pricing with qualified, mid-qualified, and non-qualified rates:

• Pro: Lower advertised rates
• Con: Complex, many transactions fall into higher tiers
• Best for: Businesses with mostly "qualified" transaction types

Hidden and Additional Fees

Beyond per-transaction fees, watch for additional charges:

Monthly and Annual Fees

• Monthly minimum fees if volume is low
• Monthly service or platform fees
• Annual PCI compliance fees
• Gateway fees separate from processing

Transaction-Related Fees

• Chargeback fees ($15-$100 per dispute)
• Refund fees (some processors charge for refunds)
• Authorization fees (separate from capture fees)
• Batch settlement fees
• International and cross-border fees

Fee Reconciliation Best Practices

Validating payment processing fees requires systematic reconciliation:

Compare Effective Rate

Calculate your effective rate: total fees divided by total transaction volume. Compare this to your expected rate based on your pricing agreement. A significant variance indicates potential issues.

Validate Individual Transactions

For interchange-plus pricing, spot-check transactions to verify correct interchange assignment. A card that should qualify for regulated debit interchange shouldn't be charged premium rewards rates. Use your processor's settlement reports to verify.

Track Fee Categories

Categorize fees by type (interchange, scheme, markup, other) to understand where money goes:

• Interchange: Should be pass-through, verify against published rates
• Scheme fees: Should match network fee schedules
• Processor markup: Should match your contract
• Other fees: Should be documented and expected

Monitor for Changes

Interchange rates change twice yearly (April and October). Processors may adjust markup with notice. Watch for:

• Rate increases buried in statement notices
• New fee categories appearing
• Changes to pricing tier assignments
• Surcharges for specific card types

Automating Fee Reconciliation

Manual fee reconciliation doesn't scale. Automation enables:

• Daily validation against expected rates
• Automatic detection of unexpected fees
• Trend analysis across time periods
• Comparison across multiple processors
• Documentation for vendor negotiations

Multi-Processor Strategy

Many businesses use multiple processors: PayPal for consumer checkout, enterprise processor for high-value B2B transactions. Managing fees across processors requires:

• Unified view of all processing costs
• Consistent categorization across providers
• Routing optimization based on fee structures
• Consolidated reporting for finance

Negotiating Better Rates

Fee reconciliation data supports rate negotiations:

• Document your actual card mix and transaction profiles
• Show competitive quotes from other processors
• Demonstrate low chargeback rates
• Highlight volume growth potential
• Request interchange-plus if on flat-rate pricing

Ready to automate fee reconciliation? Learn how NAYA helps businesses validate processing costs across reconciliation workflows.