Payment processors usually make money through a combination of transaction-based fees, markups, fixed account fees, and value-added services. Most of what a merchant pays per card transaction is not the processor’s money: interchange goes to the cardholder’s issuing bank, and scheme fees go to the card network. The processor’s revenue is the markup and the fees it adds on top of those pass-through costs.
The sections below cover who earns what in a card payment, the main revenue streams, how each pricing model changes the processor’s margin, a worked €100 example with a monthly P&L, and the costs that decide how much a processor, acquirer or PSP keeps as profit.
Who Earns What in a Card Payment
The merchant pays one total fee per card payment, the merchant discount rate (MDR), and several parties split it, each for a different job. The cardholder usually pays nothing extra at checkout. We cover the step-by-step flow of a card payment separately; this section is about who takes which slice and how they charge for it.
Issuing bank
The issuing bank issues the card and approves or declines each payment against the cardholder’s account. It earns the interchange fee on every purchase, a percentage of the transaction set by the card network, and separately earns interest and fees from its cardholders. For the processor, interchange is a cost it collects from the merchant and hands on.
Card networks (Visa, Mastercard)
Card networks such as Visa and Mastercard run the rails that connect issuers and acquirers and set the interchange rates, but they do not receive interchange. They earn scheme fees: assessment fees based on volume, plus smaller fixed fees for network access, authorization messages and cross-border transactions, charged to both acquirers and issuers. In the EU, scheme fees are not capped, unlike interchange.
Acquirer
A merchant needs an acquiring bank that provides a merchant account. To accept card payments, the acquirer processes transactions on the merchant’s behalf and deposits the funds into their merchant account. The acquirer holds the card scheme membership, settles funds to the merchant and carries the liability for chargebacks and merchant failure. It earns the acquiring markup: the difference between what the merchant pays and the pass-through fees, or the buy rate it charges the PSPs and ISOs that resell its service.
Payment processor
A payment processor moves the transaction data. It routes authorization requests from the acquirer through the card network to the issuer and back, then handles the clearing and settlement files. Processors are registered with the card schemes and certified under PCI DSS; licensing sits with acquirers and payment or e-money institutions, so many processors hold no license of their own. A processor working behind an acquirer charges it a fee per transaction, and one that also sells to merchants directly earns a markup as well.
In everyday use, “payment processor” often means whichever provider the merchant pays for card acceptance, which is why a processor’s earnings overlap with those of the acquirer and the PSP.
Payment gateway
A payment gateway captures and encrypts card data at checkout and passes it to the processor or acquirer. Standalone gateways usually charge a fixed fee per transaction, a monthly subscription or a software license; a percentage of volume appears only when the gateway also resells processing. We break down the gateway side of the model in a separate guide.
PSPs, PayFacs and ISOs
Payment service providers (PSPs) bundle acquiring, a gateway and payment methods into one merchant contract. They buy processing from an acquirer at a wholesale buy rate and sell it to merchants at a higher rate. That spread is their core revenue, topped up with account fees and paid services.
Payment facilitators (PayFacs) do the same while onboarding sub-merchants under their own master account, which lets them keep more of the spread in exchange for taking on underwriting and chargeback risk. ISOs and merchant service providers sell an acquirer’s processing and earn residuals: a share of the markup on every transaction their merchants run. Here is what ISO registration involves.
Main Revenue Streams of a Payment Processor
Payment processing revenue comes from the fees a provider adds on top of pass-through costs, not from the full fee the merchant pays. The exact model depends on whether the company acts only as a processor, also provides acquiring services, or offers additional payment infrastructure. The table sorts the typical revenue streams by how they are charged and who earns them.
| Category | Revenue stream | How it’s charged | Who earns it |
|---|---|---|---|
| Pass-through (not revenue) | Interchange | Percentage per transaction, set by the card network | Issuing bank |
| Pass-through (not revenue) | Scheme fees | Percentage plus fixed amounts per transaction | Visa, Mastercard |
| Transaction-driven | Processor markup | Percentage on top of pass-through fees, inside a blended rate or listed separately under IC++ | Acquirer, PSP |
| Transaction-driven | Per-transaction fee | Fixed fee per approved, declined or refunded transaction | Acquirer, PSP, gateway |
| Transaction-driven | FX / currency conversion markup | Spread on cross-currency transactions | Acquirer, PSP |
| Transaction-driven | Chargeback and refund fees | Fixed fee per event | Acquirer, PSP |
| Transaction-driven | Payout / settlement fees | Per payout or percentage of the settled amount | PSP, PayFac |
| Account-based | Setup / onboarding fee | One-off | PSP, gateway vendor |
| Account-based | Monthly / minimum fee | Recurring, or a top-up to a monthly minimum | Acquirer, PSP |
| Account-based | PCI compliance fee | Recurring, or a penalty for non-compliance | Acquirer, PSP |
| Software and services | Gateway / technology fee | License, SaaS subscription or per-API-call fee | Gateway or platform vendor |
| Software and services | Value-added services | Fraud screening, tokenization, reconciliation, billing | PSP, gateway vendor |
| Balance-sheet | Float and reserve income | Interest on held funds and rolling reserves | Acquirer, PSP, PayFac |
The merchant discount rate is the merchant’s total price, not a revenue line of its own. Inside it, the only part the acquirer or processor keeps is the markup; interchange and scheme fees are passed on at settlement.
New revenue streams for acquirers and PSPs
Markups are under steady price pressure. Interchange caps in the EU made card pricing easier to compare, and IC++ statements show the margin line by line. Acquirers and PSPs grow revenue per merchant by selling services on top of processing:
- fraud screening and 3-D Secure management;
- tokenization and stored-card management;
- reconciliation and reporting;
- dynamic currency conversion (DCC) and multi-currency settlement;
- faster payouts;
- extra payment methods, such as local wallets and account-to-account payments;
- routing and retries across several acquirers to recover declined payments.
Each service is billed as a monthly fee, a per-transaction fee or a percentage, and none of them raises the headline processing rate.
How software platforms earn from payments
SaaS platforms, marketplaces and POS vendors earn from the payments their users run in three main ways. A referral or revenue-share deal with a PSP pays a slice of the markup with little risk or work. Becoming a payment facilitator lets the platform set merchant pricing and keep most of the spread, but it takes on onboarding, underwriting and chargeback liability. A middle route uses a partner’s PayFac infrastructure, so the platform controls pricing without holding the full registration. Here is how the PayFac route works for platforms.
Pricing Structures for Payment Processors
The pricing model decides two things for a processor: how much of each payment it keeps and how visible that margin is to the merchant. The examples below price the same €100 EU consumer credit card sale under each model. The rates are illustrative; real rates vary by acquirer, card mix and merchant risk.
Flat-rate pricing
Flat-rate means that the merchant pays a fixed percentage per transaction regardless of actual expenses. The rate bundles interchange, scheme fees and the provider’s margin into one number, often with a fixed fee per transaction. At 1.5% + €0.25, a €100 sale costs the merchant €1.75. About €0.43 of that goes to the issuing bank and the card network; the remaining €1.32 stays with the provider before its own costs.
Flat-rate suits small merchants who want a predictable price. The provider earns more on cheap cards, such as consumer debit, and less on expensive ones, such as premium or commercial credit cards.
Interchange-plus (IC++) pricing
Interchange-plus pricing passes the interchange fee through at cost and adds the provider’s markup on top. In the stricter form, interchange-plus-plus (IC++), scheme fees are also passed through at cost and shown as their own line, so the merchant’s statement has three parts: interchange, scheme fees and markup. In plain IC+, scheme fees are folded into the markup. Either way, the markup is the provider’s margin, and IC++ makes it fully visible. IC++ markups sit around 0.3–0.8%, often with a small fixed fee.
Interchange itself depends on the card type (debit, credit, premium), whether it is a consumer or commercial card, whether the payment is domestic or cross-border, and whether the card is present or used online. In the EU, the Interchange Fee Regulation (Regulation (EU) 2015/751) has capped interchange on consumer cards at 0.2% of the transaction value for debit and 0.3% for credit since 2015. The caps do not cover commercial cards, three-party schemes such as American Express, or cards issued outside the European Economic Area, where interchange is higher.
On the €100 sale, IC++ adds up to €0.30 interchange + €0.13 scheme fees + a 0.5% + €0.10 markup = €1.03. That is €0.72 less than the flat-rate price, which is why larger merchants usually move to IC++ once their volume justifies it.
Tiered pricing
Tiered pricing sorts transactions into qualified, mid-qualified and non-qualified tiers, each with its own rate. Which tier a payment lands in depends on the card type, how the card was accepted and other conditions the provider sets. With example rates of 1.2%, 1.7% and 2.4%, the same €100 sale costs €1.20, €1.70 or €2.40. Because the provider writes the tier rules, the merchant can’t see how much of the fee is margin. Tiered pricing is more common in the US than in Europe.
| Model | How the price is built | How visible the processor’s margin is | Typical fit |
|---|---|---|---|
| Flat-rate | One blended percentage, often plus a fixed fee | Hidden inside the rate | Small merchants and new accounts that want a predictable price |
| Interchange-plus (IC++) | Interchange and scheme fees at cost, plus a disclosed markup | Fully visible as a separate line | Larger merchants with steady volume |
| Tiered | Qualified, mid-qualified and non-qualified rates | Hidden; the provider sets the tier rules | Mostly US card-present merchants |
How Much Do Payment Processors Make? A Worked Financial Model
A payment processor keeps only its markup and fees, minus what it costs to serve the payment, so the margin on a single transaction is a fraction of a percent. Profit comes from volume: the same thin margin repeated across millions of payments. The example follows a PSP that sells processing to merchants on top of an acquirer. All figures in this section are illustrative; real rates vary by acquirer, card mix and merchant risk.
The fee stack: what passes through and what stays
| Component | Who receives it | Rate | Pass-through or revenue |
|---|---|---|---|
| Interchange | Issuing bank | EU consumer cards: capped at 0.2% (debit) and 0.3% (credit); higher outside the caps | Pass-through |
| Scheme and assessment fees | Visa, Mastercard | Not capped in the EU; 0.13% in this example. US assessment fees: about 0.13–0.14% of volume | Pass-through |
| Acquirer buy rate | Acquirer | Negotiated; 0.20% + €0.03 in this example | Revenue for the acquirer, cost for the PSP |
| Markup | PSP or processor | Around 0.3–0.8% plus a fixed fee; 0.5% + €0.10 in this example | Revenue |
The interchange caps come from the EU Interchange Fee Regulation (Regulation (EU) 2015/751). The US assessment fees are published in the Visa and Mastercard fee schedules and are percentages of volume, not fixed dollar amounts per transaction.
One €100 card payment, step by step
Here is how a €100 EU consumer credit card payment, made online and priced at IC++, splits between the parties.
| Step | Amount | Who gets it |
|---|---|---|
| Merchant pays the total fee (MDR) | €1.03 | Split below |
| Interchange (0.3% cap) | €0.30 | Issuing bank |
| Scheme fees (0.13%) | €0.13 | Card network |
| Markup (0.5% + €0.10) | €0.60 | Acquirer and PSP |
| Acquirer buy rate (0.20% + €0.03) | €0.23 | Acquirer |
| PSP gross margin | €0.37 | PSP |
| Platform and gateway cost | €0.05 | PSP’s running cost |
| Risk provision for chargebacks and fraud | €0.07 | PSP’s loss reserve |
| PSP net margin | €0.25 | PSP |
Of the €1.03 the merchant pays, the PSP keeps about €0.25, roughly a quarter of the fee and 0.25% of the payment. The rest goes to the issuing bank, the card network, the acquirer and the cost of running and protecting the service.
From one transaction to a monthly P&L
Monthly contribution = (volume × percentage markup) + (transactions × fixed fee) − acquirer buy rate − per-transaction costs + account fees + value-added services
Applied to a portfolio of 200 merchants processing €10,000,000 a month in 100,000 payments of €100, with the rates from the example above:
| Line | Calculation | Amount |
|---|---|---|
| Markup revenue | €10,000,000 × 0.5% + 100,000 × €0.10 | €60,000 |
| Acquirer buy rate | €10,000,000 × 0.20% + 100,000 × €0.03 | −€23,000 |
| Gross margin on processing | €60,000 − €23,000 | €37,000 |
| Per-transaction costs | 100,000 × €0.12 | −€12,000 |
| Account fees | 200 merchants × €25 | €5,000 |
| Value-added services | Fraud screening, reconciliation | €4,000 |
| Contribution | €37,000 − €12,000 + €5,000 + €4,000 | €34,000 |
| Fixed costs | Team, compliance and audits | −€25,000 |
| Operating profit | €34,000 − €25,000 | €9,000 |
Double the portfolio to €20,000,000 and 400 merchants, and every variable line doubles: contribution rises to €68,000 while fixed costs stay at €25,000, so operating profit grows to €43,000. That is why payment processing is a volume business.
Two balance-sheet items sit outside this model. Rolling reserves hold back part of a risky merchant’s settlements for a set period to cover future chargebacks, and float income is the interest earned on funds between capture and payout.
What Eats Into a Processor’s Margin
Gross markup is not profit. Four cost lines decide how much of it a processor or PSP keeps.
- Risk. Chargebacks, fraud losses and merchant failures. Acquirers often pass this liability down to the PSP or PayFac by contract, and rolling reserves tie up cash until the risk period ends.
- Compliance. PCI DSS certification and audits, scheme registration, AML and KYC checks on every merchant, and licensing, held directly or through an acquirer or payment institution partner.
- Partner splits. Residuals paid to ISOs and agents, and referral shares paid to the software platforms that bring in merchants.
- Infrastructure. The gateway, hosting, connections to acquirers and payment methods, and the certifications that come with them.
Infrastructure: build, license or run On-Premises
Infrastructure is the one cost line a processor chooses. Building a gateway in-house turns it into a large upfront cost and a long wait before the first revenue. Licensing white-label infrastructure turns it into an operating cost that grows with volume, which keeps the margin model simple while the portfolio is still small. This comparison of building, buying and licensing sets out the trade-offs.
The usual objection to licensing is control over data and hosting. An On-Premises deployment answers it: the platform is deployed on your own servers, and the data stays in-house. Akurateco provides white-label gateway and orchestration infrastructure, as SaaS or On-Premises, and does not process transactions itself: PSPs and acquiring banks run it on top of their own acquiring connections.
Key Takeaways
- Interchange and scheme fees pass through to issuing banks and card networks; a processor’s revenue is the markup and fees it adds on top.
- Flat-rate and tiered pricing hide that markup inside one rate, while IC++ shows it as a separate line.
- In the worked example, a €100 card payment leaves the PSP about €0.25 after the acquirer’s share, risk and running costs.
- Risk losses, compliance, partner residuals and infrastructure decide how much of the gross markup becomes profit.
- Value-added services raise revenue per merchant without raising the headline rate.
For a deeper look at how payment companies grow, see our ebook with insights from renowned payments expert Dwayne Gefferie and Akurateco‘s founder and CTO, Andrew Riabchuk. It covers strategies for scaling a payment business and for choosing between self-developed and leased infrastructure.
Payment Processor Fees and Margins FAQ
How do payment processors make money?
Payment processors usually make money through a combination of transaction-based fees, markups, fixed account fees, and value-added services. Interchange and scheme fees are passed through to issuing banks and card networks. The processor’s revenue is what it adds on top: a percentage markup, fixed per-transaction fees, FX spreads, chargeback and payout fees, monthly fees and paid services such as fraud screening or reconciliation.
How much do payment processors make per transaction?
Only the markup and fixed fees, not the whole fee the merchant pays. In an illustrative €100 EU consumer credit card payment priced at interchange-plus, the merchant pays €1.03: €0.30 interchange to the issuing bank, €0.13 scheme fees to the card network and a €0.60 markup. After the acquirer’s €0.23 share and €0.12 of its own costs, the PSP keeps about €0.25.
What is the Merchant Discount Rate (MDR)?
The MDR is the total fee a merchant pays per card transaction. Under flat-rate pricing it is one blended rate; under interchange-plus it is itemized into interchange, card network fees and the acquirer’s or processor’s markup. Only the markup and any fixed fees are revenue for the acquirer or processor; the rest is passed through to the issuing bank and the card network.
What is an interchange fee?
The interchange fee is paid to the cardholder’s issuing bank on every card transaction, with the rate set by the card network. It depends on card type, region and channel. Processors and acquirers pass it through at cost, so it is not their revenue. In the EU, interchange on consumer cards is capped at 0.2% for debit and 0.3% for credit under the Interchange Fee Regulation (EU) 2015/751.
How do merchant service providers and ISOs make money?
ISOs and merchant service providers sell processing on behalf of an acquirer or processor. They buy processing at a wholesale buy rate, sell it to merchants at a higher rate and usually earn residuals: a share of the markup on every transaction their merchants process, sometimes with a share of account fees. The split is set in each partner contract.
Is payment processing profitable?
It can be, but the margin per transaction is thin, so profit depends on volume. Interchange and scheme fees pass through, which leaves the markup and fees as revenue. From that, a processor or PSP pays for chargeback and fraud losses, compliance, infrastructure and partner residuals. Merchant risk mix, pricing model and how much of the payment stack it owns decide the net margin.
What are the main pricing structures for payment processors?
There are three. Flat-rate pricing charges one blended percentage, often plus a fixed fee, whatever the card. Interchange-plus (IC++) passes interchange and scheme fees through at cost and adds a disclosed markup. Tiered pricing sorts transactions into qualified, mid-qualified and non-qualified rates. Flat-rate and tiered pricing hide the processor’s margin inside one rate; IC++ shows it as a separate line.
