Seeking a payment gateway that suits your budget? Curious about how each one compares in terms of its charges?
While the difference may seem minor at first glance, for larger businesses, even a slight variation in charges can have a significant impact on margins. These costs, especially the Merchant Discount Rate (MDR) and related transaction fees, often shape the decision to choose one provider over another.
Understanding how payment gateway charges apply across payment methods is crucial. In many cases, merchants absorb these costs, but some gateways pass a portion onto customers. Read on to learn how to choose the right gateway based on actual costs.
What are payment gateway charges?
Payment gateway charges cover the merchant discount rate, flat processing fees and incidental network costs. Providers collect them to compensate issuing banks, card networks and settlement partners. Because each rail processes risk, data and settlement differently, payment gateway charges shift in line with method complexity and fraud exposure. The result is a layered cost stack that seldom behaves uniformly across your payment mix.
Payment method guide: How your choice shapes payment gateway charges
Here’s a quick-reference guide comparing major digital payment methods used in India. Each method not only affects user experience but also carries distinct cost implications that shape your overall payment gateway charges.
- Credit cards route transactions through card schemes and issuing banks, incorporating multiple layers of risk checks. While this provides added security, it also raises processing costs. These are often the most expensive payment method, especially for international transactions.
- Debit cards use similar networks but draw directly from the user’s bank account. Because the funds are already deposited and the fraud risk is lower, fees tend to be more affordable, particularly for domestic transactions.
- UPI (Unified Payments Interface) enables real-time bank-to-bank transfers using public payment rails. With government-capped or zero fees for domestic use, UPI is now the preferred method for many merchants due to its cost-efficiency and instant settlement
- Digital wallets sit atop existing bank accounts or cards. Their pricing structure often reflects the underlying funding source, plus an additional margin set by the wallet provider. Some charge a flat fee plus a percentage, while others offer blended or tiered pricing based on usage volume.
- Buy Now, Pay Later (BNPL) services allow customers to pay in instalments while the provider pays the merchant upfront. In exchange for taking on credit risk and offering convenience to consumers, BNPL platforms charge merchants higher fees.
- Net banking facilitates direct debits from customer accounts via bank portals. Although generally priced mid-range, it avoids card scheme charges. The slower settlement time compared to UPI may lead to moderate fees, as providers account for the time value of money.
Each payment method pushes a different cost envelope, making the choice more than just a technical decision. For businesses, these differences can significantly influence transaction costs and, in turn, affect profit margins. By carefully evaluating the trade-offs between cost, speed and customer preference, businesses can design a payment strategy that supports both operational efficiency and customer satisfaction.
Why businesses should pay attention
For online businesses, the choice of payment methods directly affects transaction costs. Even a small difference in gateway charges can lead to significant expenses over time, particularly for businesses handling a large volume of transactions. Opting for lower-cost methods like UPI can help reduce these costs, but it’s important not to overlook customer preferences. Removing or limiting popular payment options may negatively impact the user experience and lead to lower conversion rates.
The key lies in finding a balance between cost-efficiency and customer convenience, allowing businesses to manage expenses while still offering a seamless and flexible payment experience.
Factors tilting the fee scale
Risk drives cost. Card networks integrate chargeback insurance and fraud analytics into every transaction, resulting in higher payment gateway charges for high-risk segments. Settlement speed matters too; instant schemes like UPI reduce working capital float, letting providers trim their cut. Regulation can suppress fees, as evidenced by India's capped UPI pricing.
Finally, aggregated volume unlocks tiered pricing; higher monthly throughput often triggers step-down MDR brackets.
Optimising payment gateway charges for long-term gains
Different payment methods come with varying costs—credit cards often carry higher fees, while options like UPI offer significant savings. For high-value transactions, these differences can greatly impact margins. By auditing your payment stack and shifting volume to cost-effective methods, you can reduce charges without affecting conversions.
Payment gateways, like Pine Labs Online, help you achieve this with high success rates, quick integration and detailed analytics.
