Payment gateway fees: What businesses need to know

Key takeaways

• A payment gateway fee is the charge you pay to a payment gateway provider for facilitating and handling online payments.

• Common mistakes businesses make when choosing a payment gateway provider include: not paying attention to contract terms, not comparing providers, choosing the wrong pricing model for their needs, and not regularly monitoring their payment processing operations.

• When choosing a payment gateway, consider its security measures, the payment methods supported, how well the platform integrates with existing systems, its multi-currency capabilities, and whether the platform can grow with your business.

Every online transaction comes with a cost, and payment gateway fees can add up fast. If your business processes hundreds or thousands of payments, these fees can cut into your profits. But are you paying more than you should?

Understanding how payment gateway fees work can help you reduce costs and improve cash flow. This guide explains the different types of fees, what influences pricing, and how to optimise your payment strategy to keep more revenue in your business.

By the end, you'll know how to choose the right payment gateway, negotiate better rates, and improve efficiency without unnecessary costs.

What is a payment gateway fee?

A payment gateway fee is what businesses pay to a provider, such as an acquiring bank (the merchant’s bank) or card network, to process online payments. This fee usually includes a small percentage of the transaction amount, plus a fixed fee for each payment processed. However, several different pricing models, including interchange plus and flat-rate pricing models, are available.

Reminder: What’s a payment gateway?

As a reminder, a payment gateway is a tool that helps businesses accept customer payments online or in-store through payment methods such as credit and debit cards, and digital wallets like Apple Pay and Google Pay.

Think of a payment gateway as the ‘middleman’ in any online transaction. When a customer makes a purchase, the payment gateway securely sends the payment details to the payment processor. It then communicates with the customer's bank to confirm the transaction and make sure they have enough funds. Once the transaction is authorised, the payment gateway then informs the merchant and facilitates the transfer of funds, completing the purchase.

Where does the payment gateway fee fit in the overall process?

Payment gateway fees cover the payment processor provider’s costs for the technology and measures needed to securely handle, verify, and process sensitive financial data.

Who gets a cut of the payment gateway fee?

The payment gateway fee is shared among different entities in the payment process.

1. The payment gateway provider takes a portion for handling the transaction and providing the platform.

2. Then, the acquiring bank (the merchant’s bank) gets its share for authorising and receiving the payment.

3. Finally, the card networks (such as Visa, Mastercard, or American Express) also charge a small fee for managing the communication between the merchant's bank and the issuing bank (the customer’s bank).

These fees ensure payment systems remain secure, reliable, and efficient.

How payment gateway fees work

Online payments feel instant, but behind the scenes, multiple systems work together to process each transaction. Let’s walk through the steps involved in an online payment, highlighting where payment gateway fees come into play.

1. The customer makes a purchase: When a customer makes a purchase through a website, they add their items to the cart and head to the online checkout. They enter their payment details (such as their credit card information) into the payment form.

2. Information is sent to the payment gateway: Once the customer submits their payment, the payment gateway securely encrypts the customer’s payment information, making sure it’s protected and that there are no clear signs of fraud.

3. Information sent to the acquiring bank: The payment gateway sends the encrypted payment information to the acquiring bank (the merchant’s bank). The acquiring bank then acts as the merchant’s financial partner and steps in to help manage the flow of funds for the transaction.

4. The acquiring bank requests authorisation from the card network: The acquiring bank sends the payment request to the card network (such as Visa, Mastercard, or American Express), which then routes the request to the issuing bank (the customer’s bank). The issuing bank checks whether the customer has sufficient funds or credit to make the payment, and then sends the authorisation response back through the card network.

5. The payment is either approved or declined: If the payment is approved, the authorisation goes back to the acquiring bank, and it passes it on to the payment gateway, letting the merchant know they can complete the transaction. If the payment is declined, the payment gateway will let the customer know they need to try again with a different payment method.

6. Payment gateway fees are deducted: The payment gateway usually takes a small percentage of the transaction (around 2–3%), plus a fixed fee per transaction.

7. Funds are transferred: Once the transaction is approved, the funds are transferred from the customer’s bank account to the acquiring bank, and then to the merchant’s account. This transfer can take anywhere from a few hours to a couple of days, depending on the payment method and which financial institutions have been involved in the transaction.

8. Merchant receives payment: Finally, the merchant receives the payment, minus any fees. The entire process happens quickly, but behind the scenes, the payment gateway, acquiring bank, card networks, and issuing bank are all working together to make it happen smoothly.

So, as you can see, it’s not just one entity handling everything. Multiple players, each taking a small cut of the payment gateway fee, work together to make sure payments are processed securely and efficiently.

Types of payment gateway fees

When you use a payment gateway to process payments, you’ll encounter a variety of payment gateway fees that each serve a purpose in the financial ecosystem. Here’s a breakdown of the most common fees you might come across.

• Transaction fees: These typically include a percentage of each sale plus a fixed amount per transaction. Rates vary by payment gateway provider and payment method (credit card, debit card, etc.). Transaction fees can significantly impact your operating costs, so be sure to carefully compare the fee structures of the different providers you’re considering.

• Monthly fees: Some payment gateways charge a monthly fee for access to their platform. This fee covers features like access to the software, customer support, and reporting tools.

• Setup fees: Many payment gateways charge a one-time setup fee to integrate their services with your website or payment system. This fee covers the cost of initial configuration and any setup assistance you might need.

• Annual maintenance fee: Similar to monthly fees, these are recurring costs paid annually to cover costs like operations, software maintenance, and customer support.

• Chargeback fees: If a customer disputes a transaction and initiates a chargeback (a reverse of their transaction), the merchant may incur a chargeback fee. This compensates the payment gateway for the administration involved in managing the chargeback process.

• Refund fees: Some gateways charge a fee when processing a refund. This is because the gateway still has to use resources to handle the transaction, even though it’s being reversed.

• PCI compliance fees: Payment gateways may charge a fee to keep your business compliant with the Payment Card Industry Data Security Standards (PCI DSS). This is to ensure that sensitive payment information is always securely handled. 

• International transaction fees: For cross-border payments, some payment gateways will charge additional (and often high) fees for currency conversion, international transactions, and handling different payment methods. These fees can include both a percentage of the total transaction amount and a fixed charge per transaction.

Factors that influence payment gateway fees

There are many reasons why payment gateway fees can vary and fluctuate over time. Understanding the factors that influence these changes helps you make smarter choices when it comes to payment processing, lowering your payment gateway fees, and improving your bottom line.

• Transaction volume: One of the biggest factors affecting payment gateway fees is transaction volume. The more transactions a business processes, the better rates they can negotiate with their payment processing provider. Larger businesses with high transaction volumes are seen as lower-risk and more profitable for payment providers, so they may enjoy discounted rates, while smaller businesses with fewer transactions might face higher fees.

• Average transaction size: If your business typically handles large transactions, payment providers might charge lower fees per transaction, because the larger amounts help balance out the overall risk and cost. On the other hand, if you're processing lots of small transactions, the fee per transaction can be higher due to the processing cost being spread over a smaller amount.

• Business industry type: Some industries are considered higher-risk than others, like travel, gambling, or subscription services. This is because they’re more prone to fraud or chargebacks. Businesses are categorised based on their risk level through merchant category codes. Because of the higher risk, payment providers may charge higher fees to cover potential losses. Lower-risk industries, like retail or professional services, may enjoy more competitive rates, due to their perceived stability.

• Accepted payment methods: Credit and debit card payments generally incur higher payment gateway fees because of the fraud prevention and security measures that go into handling them. Accepting alternative payment methods, like ACH transfers or digital wallets (e.g. Apple Pay), might reduce fees. Basically, the more types of payments you accept, the more likely you are to incur varying fees depending on the method used.

• Chargeback history: Chargebacks occur when customers dispute transactions, and payment processors might consider businesses with high chargeback rates to be risky. If your business has a lot of chargebacks, the payment provider may charge you higher payment gateway fees to compensate for the added risk and administrative work involved in resolving these disputes.

How to choose the right payment gateway

It’s easy to focus on fees when choosing a payment gateway, but cost alone shouldn’t drive your decision. The right provider depends on your business’s needs. To find the best fit for your specific requirements and business goals, you should take other factors into account, such as security, accepted payment methods, integration, customer support, value-added features, and system reliability.

Check that the payment gateway offers a variety of payment methods

77% of consumers claim they will likely abandon their cart if their preferred payment method is unavailable. Choose a gateway that supports a variety of payment options, including credit and debit cards, digital wallets like PayPal or Apple Pay, and bank transfers.

Ask whether it supports multiple currencies

If you’re selling globally, your provider should efficiently and cost-effectively handle multiple currencies and international transactions, ideally with competitive exchange rates and low fees for cross-border payments. For example, Airwallex charges a rate ‌of 1.65% + A$0.30 for domestic transactions and 3.40% + A$0.30 for international transactions, which is generally lower than other major players in the market. 

Check that the payment gateway integrates with existing systems

Your payment gateway should seamlessly integrate with your eCommerce platform, accounting software, and Customer Relationship Management (CRM) tools. This integration will save your team time, reduce manual errors, and make it easier to track your cash flow.

Look for a payment gateway with robust security measures

To keep your customer’s sensitive financial information safe, as well as helping to protect your business from fraud or data breaches, look for a provider that offers robust fraud protection, data encryption, and PCI DSS (Payment Card Industry Data Security Standard) compliance.

Look for great customer support

Look for a payment gateway with accessible, responsive customer service that can assist you with any technical issues or questions – ideally with 24/7 availability. Having good support can save you a lot of time and frustration down the line!

Check that the payment gateway can grow with your business

Can the provider grow with your business as your transaction volume increases or your business needs evolve? A scalable solution will help you avoid the hassle (and potential cost) of switching providers as your business expands.

Common payment gateway fee mistakes to avoid

When managing payment gateway fees, the wrong choice can lead to higher fees, operational inefficiencies, and slowed business growth over time. Here are some common errors businesses make when choosing a payment gateway:

Ignoring contract terms

One of the common pitfalls is not thoroughly reviewing the payment gateway contract. It's easy to overlook hidden fees or terms, such as cancellation fees, monthly fees, or charges for extra services.

Some contracts have automatic renewal clauses that unknowingly lock you into unfavourable terms. To avoid this, always read the fine print before signing. Don’t be afraid to ask your payment processing provider to clarify any terms, and make sure you fully understand what you’re agreeing to. When in doubt, consult a legal or financial adviser.

Not comparing payment gateway providers

Many businesses stick with their current payment gateway provider out of convenience. This complacency can lead to overpaying. Payment gateways vary significantly in terms of pricing, service offerings, and transaction costs, so failing to compare providers can result in missing out on lower fees or more advanced features.

To avoid this, be sure to shop around for the best provider. Compare transaction fees, monthly charges, customer support options, and security features. Even if you’re happy with your current provider, it’s worth assessing your options every so often to ensure you’re still getting the best deal.

Choosing the wrong pricing model

Payment gateways offer different pricing models for interchange fees, which are the transaction fees that merchants are charged when accepting card payments from customers, whether online or in-store. To avoid paying unnecessary fees, be sure to carefully evaluate which interchange fee pricing model suits your business. The two most common models are tiered pricing and interchange-plus pricing.

• Tiered pricing groups transactions into different categories based on risk and reward factors, such as ‘qualified’, ‘mid-qualified’, and ‘non-qualified’. As your business grows and your transaction types change, you could be bumped into a higher tier, which means higher fees. This model can make it difficult for businesses to predict costs due to fluctuating rates.

• Interchange-plus pricing, on the other hand, is more transparent. You pay the interchange fee (set by the card networks) plus a fixed markup by the payment gateway. You can see a breakdown of the fees from the card issuer, card network, and acquirer for each transaction. While it can have a higher initial rate, it’s more predictable and often more cost-effective in the long run for businesses with higher transaction volumes.

Not regularly taking stock of your payment processes

Once you’ve chosen a payment gateway, it’s easy to just set it and forget it. However, payment gateway fees can change over time, and new hidden charges may appear. Be sure to regularly review your statements, track your transaction fees, and watch for any changes in your payment gateway fee billing. This will help you ‌spot any irregularities early and allow you to take action before fees get out of hand.

Overlooking customer support and service

Cheaper payment gateways aren’t always the best option if their customer service is poor. When things go wrong (whether it’s a technical issue or a transaction dispute) you want a provider that’s helpful and responsive – ASAP. Poor customer service can lead to extended downtimes or unresolved issues that affect your cash flow, ultimately costing you more in the short-term than paying a little extra for better support in the long-term.

Cut down payment gateway fees with Airwallex

Our fee structure is transparent and competitively priced compared to some other major providers for both domestic and international transactions. Airwallex Payments also comes with fraud detection tools to minimise chargebacks and security tools that are monitored 24/7.

As well as low and transparent costs, here’s how we provide more value to your business:

Cost-saving multi-currency accounts and FX

If you sell internationally, many payment providers will require you to set up additional local bank accounts to accept funds in multiple currencies. With Airwallex, you can skip this manual process and cut your payment gateway fees down with built-in multi-currency Global Accounts. You won’t pay any forced currency conversion fees when you settle payments in the same currencies as your customers’. You can then pay out from the same balances with no currency conversions needed. When you need to convert funds, you can do so with market-leading FX rates for 60+ trade currencies and save up to 80% on fees.

Global coverage with 160+ local payment methods

Grow your global reach with payment processing with all major card schemes like Visa, Mastercard, and Amex, as well as 160+ local payment methods in 180+ countries. This widespread coverage means you can avoid having to change providers or pay for multiple providers as you grow into new markets.

Seamless integration with no-code, low-code, and fully customisable options

Get started ‌in minutes with no-code, low-code, or fully customisable solutions, ranging from Payment Links and Plugins to Payments APIs to build your own solution. We also offer 24/7 customer support if you ever need a hand.

Airwallex is more than just a payment gateway. It’s a comprehensive payment partner with tools that let you receive, hold, transfer, and manage multi-currency funds all in one place. Not only does this save you fees from subscribing to multiple platforms, but it'll also save you the hours of time spent managing them all.