What is Included in Payment Processing Fees
All the fees taken off the top of a processed payment are called the Merchant Discount Rate (MDR). Included in the MDR is:
Markup paid to the acquiring bank, acquiring processor, and/or payment facilitator
Assessments paid to the card networks (i.e., Visa, Mastercard, American Express, Discover)
Interchange paid to the issuing bank and issuing processor but set by the card networks
Payment Processing Fees Can Be Flexible
If you’re used to paying the 2.9%+$0.30 that is customary from platforms like Stripe or Paypal, you may be surprised to learn that payments processing fees don’t have to be configured this way, or even be this high. Custom fee profiles by platform or even down to the merchant level are possible, depending on factors such as volume, payout schedules, compliance settings and more.
What is interchange?
Many platforms processing payments think of the fees taken off the top of their payments purely as “interchange”. In reality, interchange fees are just one part of the overall payment processing fees charged to merchants (along with markup and assessments). While they are not the whole story, interchange fees are the largest portion.
Issuing bank fees (Interchange) are paid to the issuing side of the Payments Layer Cake. These fees are ultimately paid by the merchant to the issuing bank (e.g. Capital One, Chase, Bank of America, etc.) and then shared with the issuing processor and card program manager. Interchange is set by each card network and is non-negotiable. The fee usually consists of a per transaction processing percentage (assessed on the gross merchant value) and per transaction fee.
Breaking Down the Payments Layercake
There are several players that take fees from every transaction, but this isn’t easily understood by a lot of companies processing payments. On the acquiring side we have the payment facilitator, payment processor and acquiring bank who work with the merchant. On the issuing side we have a processor and issuing bank that issue cards to buyers and release the funds to be transferred to merchants. Between the two sides are the card networks like Visa and Mastercard.