Why is payments pricing higher in one market vs another?
When I was in payments sales, potential customers sometimes reviewed the Stripe website before meeting. Usually, they looked at the pricing page.
What you see on a payments pricing page
The Stripe pricing page is public, and one can toggle between markets. Singapore page is Stripe.com/sg/pricing and one could change the market code to AU https://stripe.com/au/pricing.
What you see depends on your market
Sometimes, customers in SG ended up on the AU/US/EU site. On the AU site, merchants saw the 1.75% + 0.3 AUD price (see below), expected Singapore’s pricing to be the same, but then were surprised when they found out that Singapore sticker pricing started at 3.4% + 0.5 SGD.
Common questions were:
- Why do merchants in Australia (or X market) pay less?
- Why does pricing differ by market?
In this post, I will:
- Breakdown payment costs drivers
- Share how costs differ by market
- Explain the implications on merchant fees and differences across markets
Payments costs drivers
First, payment costs have three components.
- Interchange fees: fees that go to the bank that issued the card.
- Scheme fees: fees that go to the card networks like Visa, Mastercard.
- Acquirer + Processor fees: fees that go to the payment service provider (PSP). This is their margin.
See below for how these fees add up to the total merchant rate.
Second, “Interchange” is the majority of the total payment fees a merchant pays.
Interchange is the majority of the payment fees that merchants pay. Interchange funds card rewards like miles, cashback, and more. Interchange tends to be higher for credit rather than debit cards in most markets. In the cards world, merchants absorb payment fees in order to accept card payments.
Third, the difference in pricing between markets is driven mostly by interchange rate by market.
In some markets, interchange is regulated and capped (eg to be <0.X% for debit, <1% for credit), which you can find online [1]. Australia, Malaysia, Europe are examples of regulated interchange markets.
In fact, what I admire about Australia is how the costs of card payments are shared with the consumer. For example, see below.
Some markets do not have a publicly published interchange guide, like Singapore, Philippines, Hong Kong etc. I hope it will be public one day. As we wait, a merchant could ask their acquirer for this information.
Conclusion
The message I often repeated was: sticker pricing across payment companies will differ by market, because of the difference in underlying costs. That is why a mid size Singapore / Hong Kong / US merchant will pay more fees to their payment provider than a mid size Australian merchant, because of higher interchange (see a US vs AU comparison here in graph B2)
For cross border payments, interchange and scheme fees are even higher, and this could double to triple payments costs. The rise of crypto payments and the cross border linking of local payment networks might help lower merchant costs. In the mean time, cards are the expensive but possible enabler of cross border payments.
Finally, here are two frequently asked questions.
Q: How are interchange rates set?
It’s collaboration between issuers, card networks, and sometimes governments (if regulated). Seems to be an art and science — see Mastercard’s explanation here.
Q: I won’t have a problem if I choose “interchange plus” pricing right?
Wrong. I’ve written a post here on this topic. Summary — as a merchant paying “interchange plus” pricing, you’ll pay the different interchange + scheme fees, and depending on market, your payment costs will differ. Additionally, you have to manage fluctuations and audit your fees. Different models of pricing — blended vs “interchange plus” — are suitable at different growth stages.
[1] For example, you can find Australia’s interchange fee for Visa here. Interchange is not always public information, but you can Google search to find it for Australia, Europe, Malaysia due to regulations.
