A breakdown of online payment processing fees

Online payment processing is an essential part of doing business in today’s digital age, but understanding the costs associated with it can be confusing for some. One of the most significant costs associated with online payments is the transaction fee, which can be broken down into several different components. In this article, we will explain the cost breakdown of the transaction fee in simple terms, so entrepreneurs can have a better understanding of how it works and how the costs are divided among the different parties involved.

The first component of the transaction fee is the acquirer fee, which is a percentage of the total transaction amount charged by the acquiring bank or the financial institution that processes the payment. This fee is used to cover the costs associated with approving and settling the transaction. The acquirer fee is typically around 1-2% of the total transaction amount.

The second component of the transaction fee is the issuer fee, which is also a percentage of the total transaction amount charged by the issuing bank or the financial institution that issued the customer’s credit or debit card. This fee is used to cover the costs associated with approving the transaction and providing the customer with credit or debit card services. The issuer fee is typically around 0.5-1% of the total transaction amount.

The third component of the transaction fee is the payment gateway fee. Payment gateway is a service that acts as a facilitator for online payments by providing merchants with an interface to manage payment transactions, fraud detection and prevention, and compliance with regulations. Payment gateways charge a small fee for providing this service usually it ranges from 0.5-2%.
Finally, there may be other fees associated with the transaction fee such as an interchange fee which is a charge that applies to all card transactions and is used to cover the costs of creating, distributing and maintaining credit and debit cards. It is set by the card networks and it is usually around 0.2-0.3% of the transaction.

In summary, the transaction fee is made up of several different components, including the acquirer fee, the issuer fee, the payment gateway fee, and other fees such as the interchange fee. These fees are a small percentage of the total transaction amount and are used to cover the costs associated with approving, settling, and providing the customer with credit or debit card services. The bulk of the payment gateway transaction fee is taken up by the acquiring and issuing bank, while payment gateways make a much smaller percentage per transaction.

By understanding the breakdown of the transaction fee, businesses can make more informed decisions about which payment processors and solutions to use and how it affects their bottom line.