Why is payments pricing higher in one market vs another?

When I was in payments sales, potential customers sometimes reviewed the Stripe website before a meeting. Usually, they looked at the pricing page.

What you see on a payments pricing page

What you see depends on your market

AU pricing, screenshot as of mid Aug’22. I don’t own this please go to https://stripe.com/au/pricing for the latest

Common questions were:

  • Why do merchants in Australia (or X market) pay less?!
  • Why does pricing differ by market?

In this post, I will:

  1. Breakdown payment costs drivers
  2. Share how costs differ by market
  3. Explain the implications on merchant fees and differences across markets

Payments costs drivers

First, payment costs have three components.

  1. Interchange fees: fees that go to the bank that issued the card.
  2. Scheme fees: fees that go to the card networks like Visa, Mastercard.
  3. 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.

Image is my own, please do not use without written permission

Second, “Interchange” is the majority of the total payment fees a merchant pays.

Third, the difference in pricing between markets is driven mostly by interchange rate by market.

In fact, what I admire about Australia is how the costs of card payments are shared with the consumer. For example, see below.

Actual picture taken at an AU SMB

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

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. 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 regulation.

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Celine Wee

Musings are my own: a collection of learnings from Payments, Go To Market, Web3, Biz Ops across Stripe, Coinbase, Twitter.