The Fee Stack: How Payment Processing Costs Break Down
The total cost a merchant pays for each card transaction is called the Merchant Discount Rate, or MDR. This is not one fee but three stacked on top of each other.
The interchange fee is the largest component, typically accounting for 70% to 90% of total processing costs. It is set by the card network and paid by the acquirer to the issuing bank. Card networks set these rates based on card type, transaction method, merchant category, and data quality. A premium rewards credit card processed as a keyed-in e-commerce transaction carries a higher interchange rate than a contactless debit card at a physical store. In the United States, interchange averages about 1.79%, with card present transactions coming in around 1.71% and card not present (online) transactions running closer to 1.91%. In the European Union, regulation caps interchange at 0.3% for credit cards and 0.2% for debit cards. Visa and Mastercard update their interchange rate schedules twice per year, in April and October. In 2026, interchange continues to evolve with new categories tied to network tokenization and authentication levels.
The scheme fee, sometimes called the assessment fee, is charged by the card network itself for the use of its infrastructure. These cover the cost of operating the rails, security programs, and brand marketing. They typically run between 0.11% and 0.13% of the transaction value, and can include extra charges for cross-border or international cards. Small individually, they add up quickly at scale.
The acquirer markup is the fee the acquiring bank or PSP charges for its services: processing the transaction, maintaining the merchant account, providing fraud tools and customer support, and managing settlement. This is the only negotiable piece of the equation, and it is where the competitive battle between processors plays out.
| Fee Component | Example Rate | Amount on $100 Sale |
|---|---|---|
| Interchange fee | 1.65% + $0.10 | $1.75 |
| Scheme fee (Visa/MC) | Approx. 0.13% | $0.13 |
| Acquirer markup | 0.15% + $0.05 | $0.20 |
| Total MDR | Approx. 1.93% + $0.15 | $2.08 |
How Processors Price Their Services
Interchange plus plus (IC++). The most transparent model available. The merchant sees the exact interchange fee, the exact scheme fee, and the acquirer's markup broken out as separate line items. Adyen uses this model by default, and most enterprise processors offer it on request. It is the recommended structure for businesses serious about cost optimisation.
Flat rate pricing. A single blended rate per transaction, such as 2.9% plus $0.30. Stripe, Square, and PayPal all use this approach for standard accounts. It is simple and predictable, but it becomes increasingly expensive as transaction volume grows because the merchant pays the same rate regardless of the underlying interchange category.
Tiered pricing. Transactions are sorted into tiers (typically labelled qualified, mid qualified, and non qualified) with different rates for each. This is often the least transparent model because the criteria for classification can be opaque. It remains common among traditional ISOs and legacy processors.
Account-to-account wallet pricing. A newer pricing tier is appearing for wallet-led account-to-account checkouts. Revolut Pay, for example, publishes 1% + £0.20 online and 0.5% + £0.02 in-person for the A2A flow, with the same 1% line for Pay by Bank capped at £5. These rates reflect the absence of card-network interchange on the consumer leg, which is structurally cheaper than a card-not-present transaction. Merchants serving European or UK-heavy customer bases can use these rates as a low-fee benchmark when negotiating with traditional processors. The independent Revolut Pay review walks through the full rate card.
Cross-Border and Foreign Exchange Fees
Cross-border and foreign exchange fees appear when the card issuer and merchant bank sit in different countries or currencies. Networks add international service fees, issuers often charge their cardholders a foreign transaction fee, and PSPs or acquirers apply FX markups on the exchange rate. These charges can add 1% to 2% on top of standard processing fees, making cross-border transactions significantly more expensive than domestic ones.
Dynamic currency conversion at checkout can shift some costs to the consumer by allowing them to pay in their home currency, but it introduces its own fees and can result in lower approval rates in certain markets. Merchants selling internationally should compare the total cost of cross-border processing against the investment required to establish local acquiring in their highest volume markets. For many businesses, securing a local acquirer in a key region eliminates the cross-border surcharge entirely and often improves authorization rates as well.
Card Present vs. Card Not Present Transactions
This distinction is one of the most important in the entire payments ecosystem. When a physical card (or a phone storing a digital version of the card) is presented at a terminal, the transaction is classified as card present. These include chip (EMV), contactless (NFC/tap), and mobile wallet payments. Card present transactions have lower fraud rates and therefore qualify for lower interchange fees.
When the card is not physically present, such as in e-commerce purchases, phone orders, and subscription billing, the transaction is classified as card not present, or CNP. These carry significantly higher fraud risk and correspondingly higher interchange fees. Additional authentication protocols such as 3D Secure (branded as Verified by Visa and Mastercard SecureCode) exist specifically to reduce CNP fraud.
Calculating the True Cost of Acceptance
Additional charges beyond the core fee stack include gateway fees, monthly minimums, statement fees, chargeback handling, and equipment costs for in-person setups. To calculate the true cost of acceptance, merchants should request a detailed interchange-plus quote, run sample transactions across their actual mix of cards and regions, and factor in decline rates and retry expenses.
A seemingly low flat rate can become expensive when volume grows or international sales increase, while interchange-plus often rewards optimization through better data and routing. Merchants processing significant volume should also evaluate whether payment orchestration can reduce costs by routing each transaction to the provider offering the best rate for that specific card type, geography, and payment method. Even small improvements of 10 to 30 basis points compound into meaningful savings at scale.