Growing e-commerce demand creates an opportunity for payment providers that can help merchants improve online payment processing. For payment entrepreneurs, launching or upgrading a payment processing company can become a scalable business model built on transaction volume, merchant services, and reliable payment infrastructure.
Paying by credit card, a client only manages to blink while the payment is already done. In the meantime, a complex ecosystem of players is in action. However, how payment processors make money on transactions may not be so clear. We will uncover the payment processing below, dive into processors’ payment structure, and draft the full financial model used by them.Parties involved in payment processing
A gap from the moment when a client makes a payment to the moment the finances settle in the merchant’s account is barely noticeable. Basically, there is the merchant who sells the goods, the client who wants to purchase them, and a well-thought-out technology connecting them. A well-coordinated work of technologies of payment processors goes unnoticed. However, without it, the transfer of finances would be impossible.
Parties Involved in Payment Processing
Payment processors are companies licensed to manage credit or debit card transactions on behalf of merchants and clients. In practice, credit card payment processing companies act as the technological link that helps transaction data move securely between merchants, payment gateways, card networks, acquirers, and issuing banks. Such parties are involved in payment processing:
Merchant
It is his product that provides the customer’s interest and willingness to make a payment. To be able to receive funds, the merchant should have established payment mechanisms.
The acquirer
A merchant is obliged to have an acquiring bank that supplies a merchant account. The only option for his e-commerce to receive payments by card is for the acquirer to accept payments on his behalf and deposit them into his merchant account.
Payment gateway
A payment gateway is a virtual equivalent of a POS terminal. It is essential to conduct an online transaction. A payment gateway represents software that connects the payment form on the merchant’s website with the processing network. A gateway receives the data from a credit card reader and transmits it securely to a credit card processor.
Payment processor
After the mentioned above data is directed to the payment processor, a transaction is moved through the processing network and back. The processor ensures that the data is transmitted safely among all the parties involved. The processor’s functions are also to send an invoice and work with the client’s bank.
Card network
Through card networks’ electronic infrastructure, banks and processors can communicate and manage transactions in real-time. Another function of card networks is to standardize rules and requirements for the network’s participants. So, how do card networks earn revenue? They typically charge an assessment fee per transaction processed through their infrastructure.
Client
For purchasing the goods on the website, a client should have a credit or debit card. He has to conduct an agreement with an issuing bank to qualify for a card.
Issuing bank
The name of the issuing bank is written on the credit card of the client. Its function is to approve credit accounts for the cardholders. Issuing banks hold responsibility for paying the merchant’s bank. If you are considering how to start a credit card processing company, understanding the roles of each of these entities—payment gateway, payment processor, card network, client, and issuing bank—is essential. These components work together to enable secure and efficient credit card transactions and form the foundation of the payment processing business model.
Payment Processor Revenue Model: Main Revenue Streams
Payment processors usually make money through a combination of transaction-based fees, markups, fixed account fees, and value-added services. The exact model depends on whether the company acts only as a processor, also provides acquiring services, or offers additional payment infrastructure.
| Revenue stream | How it works | Who usually pays | Why it matters |
|---|---|---|---|
| Merchant discount rate (MDR) | A percentage of each transaction, usually combining interchange, card network fees, acquirer fees, and processor markup. | Merchant | This is often the core revenue source in payment processing. |
| Transaction fee | A fixed fee charged per approved, declined, refunded, or attempted transaction, depending on the pricing model. | Merchant | Creates predictable revenue tied directly to payment volume. |
| Processor markup | The processor’s own margin added on top of interchange, assessment fees, and acquiring costs. | Merchant | This is where processors can directly control part of their profitability. |
| Setup or onboarding fee | A one-time fee for account setup, merchant onboarding, technical configuration, or compliance review. | Merchant or PSP client | Helps cover upfront operational and technical costs. |
| Monthly account fee | A recurring fee for account maintenance, reporting, support, fraud tools, or access to payment infrastructure. | Merchant or PSP client | Adds recurring revenue beyond transaction volume. |
| Gateway or technology fee | A fee for using payment gateway infrastructure, APIs, routing, tokenization, analytics, or other technical services. | Merchant, PSP, or platform | Important for payment companies that monetize software as well as processing. |
| Chargeback and dispute fees | Fees charged when a merchant receives a chargeback or needs dispute management support. | Merchant | Compensates the provider for operational work and risk management. |
| Value-added services | Additional paid services such as fraud prevention, reporting, reconciliation, billing, merchant management, or compliance support. | Merchant, PSP, or payment business | Helps processors increase revenue per client without relying only on payment volume. |
For a broader view of how payment companies structure revenue, costs, and market positioning, see our guide to the payment gateway business model.
Pricing Structures for Payment Processors
Looking for a payment processor, merchants often do not understand how transaction fees are calculated. We will uncover the main pricing structures for you to be the most informed about the options available. The payment service provider business model depends heavily on pricing structures like flat-rate, interchange-plus, or tiered fees.
Flat-rate pricing
Flat-rate means that the merchant pays a fixed percentage per transaction regardless of actual expenses. The fixed percent includes the percentage paid to a cardholder’s bank, a card network, and a merchant bank. In case a discount fee has a combined rate of 3.5% of the transaction amount plus $0.15 per transaction, it means that a 1000$ sale will cost you 35.15$.
Interchange plus pricing
Interchange is the fee the acquirer covers once a client pays a merchant via credit card. In flat-rate charging, one flat-rate covers the interchange or the wholesale rate as well as the markup from the processor. Unlike it, the interchange is the structure where the acquirer charges a fixed fee over the interchange. For instance, 2.5% + $0.10 over 1.5% interchange fee. In this case, a 1000$ sale will cost you 40,1$.
Tiered pricing
The structure of ties pricing implies the division of transaction rates into qualified, mid-qualified, and non-qualified tiers. Each one has its processing rate. The qualification depends on various features, such as the type of card and payment method. Since the amount of fee differs according to the kind of tier, the approximate cost varies as well. Thus, a 1000$ sale could cost you around 25$-35$.
Earning on Payment Processing: Full Financial Model
Thus, you know the main parties in payment processing and get how companies determine transaction fees, so let’s look at their financial model using a standard eCommerce transaction.Understanding how much do payment processors make depends largely on these fee structures and markups.
Assessment fee
Visa and others networks charge the commission that you pay to the card network per transaction for electronic networks that ensure acceptance of credit cards. For example, Visa has a 0,14$ assessment fee for a standard credit card transaction. MasterCard has a 0,13$ fee for transactions under 1,000$ and 0,14$ for greater ones.
Interchange fee
Although such type of fee is paid to the cardholder’s bank that supplies a client with a credit card, its amount is determined by the card network. As a rule, interchange rate is a percentage of a transaction cost plus a fixed dollar amount. Its value depends on the type of card, processing, category of e-commerce, etc. Visa’s interchange fee is from 1.15% +$0.25 to 2.70% + $0.10. MasterCard’s interchange fee is from 1.35% + $0.00 % to 3.25% + $0.10.
Acquirer Mark-Up
Acquirer mark-up is a part of a discount fee that is paid to the acquirer. For the most part, the acquirer mark-up also includes the payment processor’s fee. This element is central to the how do payment processors make money question, as a portion of that markup often goes to the processor as profit. The acquirer mark-up may differ a lot according to business and transaction type, processing volume, etc. The trial calculation complicates by the fact that many options of services are available for the merchant. Certain merchant services offer a commission per transaction, some once per month, and others impose both per the supplied services.
Options for Establishing a Payment Company
Develop payment software in-house
The first and most obvious option is to develop a payment infrastructure yourself. It is a good choice in terms of high levels of customization and full control over your system. However, this route also comes with significant considerations in terms of cost and time-to-market. Developing a payment gateway from scratch typically starts at around $500K, with costs scaling higher based on features and integrations. As for time-to-market, expect a development period of about one year from initial planning to launch, along with obtaining all necessary certifications.
Lease a payment solution from a trusted vendor
Alternatively, you could lease a white-label payment infrastructure from an established software provider. This option provides access to a fully functional, end-to-end payment platform with pre-built technologies and integrations, often at a much lower cost than building a solution in-house. A leased solution is typically ready to use within a few weeks or months, allowing for faster deployment. However, it may not offer the same degree of flexibility, customization, or control as a self-developed platform.
Want to Build a Payment Business Financial Model?
If you’re considering entering the payment service provider (PSP) market, explore our recent ebook, which includes insights from renowned payments expert Dwayne Gefferie and Akurateco’s founder and CTO, Andrew Riabchuk. In it, they share expert strategies for launching and scaling a payment business, covering both self-developed and leased infrastructure options. The ebook also highlights what future merchant payment processors should consider when selecting their business model and technology stack. Check it out below.
