Updated:
December 30, 2025
12 min
The Silent 3% Tax on Every Transaction
Payment processing fees are the most consistent margin leak in ecommerce. Every transaction-every single sale-loses a percentage to processors, card networks, and banks before you see a dollar.
1.5%-3.5% processing fees per transaction, with the exact amount depending on factors like card type, processing method, and business industry. For a business processing $500,000 annually, that's $7,500 to $17,500 in fees-pure margin erosion.
Most ecommerce operators treat payment processing as a fixed cost, accepting whatever rates their processor quotes. This is negligent. Processing fees are negotiable, processor selection matters enormously, and structural choices can reduce costs by 20-40% without changing anything about how you sell.
Payment processing is a unit economics problem hiding in plain sight.
Understanding the Fee Structure
Payment processing fees aren't a single charge-they're a stack of fees from multiple parties, each taking their cut.
The Three Components:
1. Interchange Fees (1.15-2.90%): Paid to the card-issuing bank. Non-negotiable, set by card networks.
2. Assessment Fees (0.13-0.15%): Paid to card networks (Visa, Mastercard). Non-negotiable.
3. Processor Markup (0.10-1.0%+): Paid to your payment processor. Negotiable.
$172 billion in fees in 2023, with $170 billion in interchange. The interchange and assessment are the bulk of costs-but the processor markup is where you have leverage.
Typical Fee Breakdown:
For a $100 card-present transaction:
Interchange: $1.80 (1.80%)
Assessment: $0.13 (0.13%)
Processor markup: $0.30 (0.30%)
Total: $2.23 (2.23%)
For a $100 ecommerce transaction:
Interchange: $2.30 (2.30%)
Assessment: $0.13 (0.13%)
Processor markup: $0.50 (0.50%)
Total: $2.93 (2.93%)
2.9% + 30¢ online per transaction at most major processors-but this is the starting point, not the final rate.
Why Ecommerce Pays More
Card-not-present transactions (online payments) carry higher interchange rates than card-present transactions (physical retail). This is because fraud risk is higher when the card isn't physically swiped.
Interchange Rate Comparison:
Transaction Type | Typical Rate | Why |
|---|---|---|
Card present (swiped/chip) | 1.5-2.0% | Lowest fraud risk |
Card present (keyed) | 2.0-2.5% | Higher fraud risk |
Card not present (ecommerce) | 2.2-2.9% | Highest fraud risk |
Card not present (recurring) | 2.0-2.5% | Lower risk with stored card |
2.4% global average in 2024. Australian merchants typically face rates of 1.5-2.5% due to regulatory environment.
Pricing Models: Interchange-Plus vs. Flat Rate
How your processor charges you matters as much as the rate itself.
Flat-Rate Pricing
How It Works: Single rate for all transactions (e.g., 2.9% + $0.30).
Pros:
Simple, predictable
No statement complexity
Good for low-volume businesses
Cons:
Overpay on debit cards (lower interchange)
Overpay on in-person transactions (if applicable)
No transparency on actual costs
Best For: Businesses under $50K monthly volume, simplicity priority.
Interchange-Plus Pricing
How It Works: Actual interchange + fixed markup (e.g., interchange + 0.3% + $0.10).
Pros:
Pay actual interchange (lower cost for debit)
Transparent breakdown
Better for high-volume businesses
Cons:
Complex statements
Rates vary by transaction
Requires monitoring
Best For: Businesses over $50K monthly volume, margin optimisation priority.
Cost Comparison Example:
Monthly processing: $100,000 across 1,000 transactions
Pricing Model | Rate | Monthly Cost |
|---|---|---|
Flat rate | 2.9% + $0.30 | $3,200 |
Interchange-plus | ~2.3% + $0.15 | $2,450 |
Savings | $750/month ($9,000/year) |
The savings compound at scale. A $500K monthly processor with interchange-plus saves $3,750/month vs. flat rate.
The Payment Processor Optimisation Framework
The Payment Processor Optimisation Framework provides a systematic approach to reducing payment processing costs.
I've noticed that most ecommerce operators accept payment processing as a fixed cost-they set up a processor, accept the default rates, and never revisit the decision. This is leaving money on the table. A brand processing $200,000 monthly can often save 0.3-0.5% through negotiation and optimisation alone-that's $7,200-$12,000 annually in pure margin recovery.
Layer 1: Processor Selection
Not all processors are equal. Rates, features, and support vary significantly.
Major Processor Comparison (Ecommerce):
Processor | Standard Rate | Volume Discount | Best For |
|---|---|---|---|
Stripe | 2.9% + $0.30 | Custom pricing at scale | Developer-first |
PayPal | 3.49% + $0.49 | Volume discounts available | Brand trust |
Square | 2.9% + $0.30 | Limited negotiation | Omnichannel |
Shopify Payments | 2.9% + $0.30 | Lower with Shopify Plus | Shopify stores |
Braintree | 2.59% + $0.49 | Custom pricing | Enterprise |
Australian-Specific Options:
Processor | Rate | Notes |
|---|---|---|
Tyro | 1.5-2.5% | Australian-focused, good rates |
Pin Payments | 1.75% + $0.30 | Popular with Australian SMBs |
eWay | 1.75%+ | Australian gateway |
Stripe AU | 1.75% + $0.30 | Local entity, competitive |
Layer 2: Rate Negotiation
rate negotiation options that many owners overlook.
Negotiation Leverage Points:
1. Volume: Higher volume = more negotiating power 2. Competitor quotes: Get quotes from competing processors 3. Industry risk: Lower-risk industries justify lower rates 4. Long-term commitment: Multi-year agreements for rate locks 5. Payment method mix: High debit percentage reduces average cost
Typical Discount Ranges:
Monthly Volume | Potential Discount |
|---|---|
$25-50K | 0.1-0.2% reduction |
$50-100K | 0.2-0.3% reduction |
$100-250K | 0.3-0.5% reduction |
$250K+ | 0.5%+ reduction + custom interchange-plus |
Negotiation Script:
"We're processing $X monthly and evaluating payment processors. We've received quotes from [competitor] at [rate]. Can you match or beat this rate to retain our business?"
Always get competing quotes before negotiating. Processors respond to concrete alternatives.
Layer 3: Transaction Optimisation
Beyond processor selection, optimise how transactions flow through your system.
Debit Card Routing:
Debit card transactions through PIN networks cost less than credit routing. Enable PIN debit for card-present transactions (if applicable).
Address Verification (AVS):
Successful AVS verification can qualify transactions for lower interchange rates. Collect billing address and verify against card-issuing bank records.
3D Secure Authentication:
Implementing 3D Secure (Verified by Visa, Mastercard SecureCode) shifts fraud liability and may qualify for lower interchange on authenticated transactions.
Recurring Billing Optimisation:
Stored card transactions with recurring billing indicators often qualify for lower interchange rates than standard card-not-present transactions.
Layer 4: Alternative Payment Methods
Diversifying payment options can reduce average processing costs.
Lower-Cost Alternatives:
Payment Method | Typical Cost | Notes |
|---|---|---|
ACH/Bank Transfer | 0.5-1% | Best for high-ticket items |
Buy Now Pay Later | 3-6% | Higher but increases conversion |
Digital Wallets | ~2.9% | Similar to cards but faster checkout |
PayID (Australia) | 0.5-1% | Instant bank transfers |
Cryptocurrency | 0.5-1% | Niche but low cost |
Strategic Application:
Offer ACH/bank transfer for orders over $500-customers save (no credit card points anyway on high-ticket), you save 1.5-2% in processing fees.
The Impact of Card Mix
Your customer base's card preferences significantly affect average processing costs.
Card Type Impact:
Card Type | Typical Interchange | Impact |
|---|---|---|
Debit (PIN) | 0.5-1.0% | Lowest cost |
Debit (signature) | 1.0-1.5% | Low cost |
Credit (standard) | 1.5-2.0% | Moderate |
Credit (rewards) | 2.0-2.5% | Higher cost |
Credit (premium/corporate) | 2.5-3.0%+ | Highest cost |
Strategic Considerations:
1. Accept all cards: Declining premium cards loses sales 2. Encourage debit: Subtle messaging can shift mix 3. Monitor mix: Track card type distribution monthly 4. Price accordingly: Build average processing cost into pricing
Reducing Chargebacks and Disputes
Chargebacks cost more than processing fees-they include the transaction amount, merchandise, and penalty fees of $15-100 per dispute.
25,000+ MATCH list additions in 2024 from avoidable errors.
Chargeback Prevention:
1. Clear billing descriptors: Customers recognise charges on statements 2. Responsive customer service: Resolve issues before disputes 3. Delivery confirmation: Proof of delivery prevents "item not received" chargebacks 4. Clear return policies: Reduce "not as described" disputes 5. Fraud prevention tools: 3D Secure, AVS, velocity checks
Chargeback Economics:
Metric | Impact |
|---|---|
Chargeback fee | $15-100 per incident |
Lost merchandise | Full product cost |
Lost transaction | Full revenue |
Threshold penalty | 1%+ of volume for high-ratio merchants |
Account termination | MATCH listing for excessive chargebacks |
Reducing chargebacks by 50% can save more than rate negotiation on high-volume accounts.
The Payment Processing Calculator
Step 1: Calculate Current Costs
Metric | Value |
|---|---|
Monthly processing volume | $_____ |
Number of transactions | _____ |
Current effective rate | _____% |
Monthly processing fees | $_____ |
Step 2: Calculate Cost by Component
Component | Rate | Monthly Cost |
|---|---|---|
Interchange (estimated) | ~2.0% | $_____ |
Assessment | ~0.13% | $_____ |
Processor markup | _____% | $_____ |
Fixed per-transaction | $_____ × txns | $_____ |
Total | $_____ |
Step 3: Model Savings Scenarios
Scenario | Rate Change | Monthly Savings | Annual Savings |
|---|---|---|---|
Negotiate 0.2% reduction | -0.2% | $_____ | $_____ |
Switch to interchange-plus | -0.3-0.5% | $_____ | $_____ |
Reduce chargebacks 50% | Variable | $_____ | $_____ |
Step 4: Calculate ROI
> Annual Savings ÷ Time Investment = ROI
Even 4 hours of processor negotiation yielding $5,000 annual savings = $1,250/hour effective rate.
The 60-Day Payment Optimisation Sprint
Phase 1: Analysis (Days 1-20)
Week 1: Current State Audit
Download 3 months of processing statements
Calculate effective rate (total fees ÷ total volume)
Identify fee components and breakdown
Document chargeback rate and costs
Week 2: Market Research
Request quotes from 3+ competing processors
Research interchange-plus options
Identify Australian-specific alternatives
Calculate potential savings per processor
Week 3: Card Mix Analysis
Analyse card type distribution
Calculate interchange by card type
Identify high-cost card patterns
Model alternative payment method impact
Phase 2: Negotiation (Days 21-40)
Week 4: Prepare Negotiation
Document current rates and volume
Prepare competitor quotes
Calculate target rate
Identify switching costs
Week 5: Execute Negotiation
Contact current processor with competing quotes
Request rate reduction and/or interchange-plus pricing
Document all offers in writing
Compare total cost (not just headline rate)
Week 6: Decision
Calculate true savings from each option
Factor in switching costs and time
Negotiate final terms
Execute agreement or switch
Phase 3: Implementation (Days 41-60)
Week 7-8: Optimisation
Implement AVS and fraud prevention
Set up alternative payment methods
Optimise checkout for debit preference
Update billing descriptors
Week 9: Measurement
Track effective rate post-implementation
Monitor chargeback rate
Document actual savings achieved
Plan next review cycle
Monitoring Dashboard
Monthly Payment Metrics
Metric | Target | Current | Variance |
|---|---|---|---|
Effective processing rate | <2.5% | _____% | _____% |
Chargeback rate | <0.5% | _____% | _____% |
Chargeback cost | <$500 | $_____ | $_____ |
Refund rate | <5% | _____% | _____% |
Processing fees as % margin | <10% | _____% | _____% |
Quarterly Review
Processor rate review (are rates still competitive?)
Card mix trend (shifting toward higher/lower cost?)
Chargeback trend (improving/worsening?)
Alternative payment method adoption
Annual savings tracking
The New North Star Metric: Net Transaction Yield
Stop tracking payment processing as an isolated cost. Start measuring Net Transaction Yield (NTY)-the percentage of gross transaction value that actually reaches your operating account.
The Calculation:
Interpretation:
NTY > 96%: Excellent-minimal transaction leakage
NTY 94-96%: Acceptable-typical processing efficiency
NTY 92-94%: Concerning-above-average transaction costs
NTY < 92%: Critical-significant value loss in payment layer
This metric captures the complete picture of payment economics-not just processing fees, but chargebacks, refunds, and all transaction-level costs. It reveals how much of every dollar actually becomes usable revenue.
The Transaction Cost Reality
$148.5 billion in 2024 from merchant fees. That's money coming directly from business margins.
Payment processing is the one cost you pay on every single transaction. Even small rate improvements compound across every sale, every day, every month.
Audit your rates. Negotiate aggressively. Monitor continuously.
Your margins depend on it.
