Payments Resources

The Actual Costs in Using a Payment Gateway

The Actual Costs in Using a Payment Gateway

Understanding the True Costs of Using a Payment Gateway

As the eCommerce market expands, so does the array of payment gateways available to merchants worldwide. Many are tempted by platforms advertising free or low-cost services, thinking they've secured a great deal. However, the reality of hidden costs of payment gateways often emerges only after transactions begin, potentially eroding profit margins.

Are you grappling with the complexities of global transactions? Consider Tazapay, your global payment gateway partner. With a network extending across 173 countries and a suite of fully digitised solutions for marketplaces and platforms, Tazapay helps you make the world your market.

To better understand this landscape, let’s explore the common costs and fees associated with payment gateways, particularly those involved in cross-border payments.

Platform Fees: Decoding the Cost Structures

Platform fees are relatively straightforward—they represent the costs of using a payment platform. Most reputable payment gateways impose some type of fee. These fees can vary, typically appearing as a combination of a flat fee plus a percentage of the transaction, or as a simple percentage-based fee.

For example, some payment gateways may charge fees such as $0.30 plus 2.9% per transaction, or $0.11 plus 3.95%, depending on the payment method. In contrast, Tazapay offers a more streamlined approach, charging either 1.8% or 3% for non-card transactions. To illustrate the differences in cost structures, consider the expense of a $50 transaction versus a $1000 transaction:

Using a $0.30 + 2.9% fee structure, a $50 transaction incurs a cost of $1.75, while a $1000 transaction costs $29.50.
However with Tazapay’s fee, starting from 0.8%, the same transactions would cost just $0.40 and $8, respectively.

Comparing these fee structures highlights significant differences. Opting for a straightforward percentage fee, such as Tazapay’s, can be more cost-effective, particularly for larger transactions where flat fees add up. This comparison underscores the importance of understanding payment gateway fees and how they impact your costs, especially in a cross-border payment gateway context.

Payment Gateway Costs

Understanding payment gateway costs is essential when considering the financial implications of various payment methods. These platforms may absorb fees, integrating them into overall platform fees, or pass them directly to consumers.

1. Bank Transaction Fees

Bank transaction fees play a significant role in the costs associated with direct bank payment methods like local bank transfers and bank redirects. Typically, local bank transfers might incur a surcharge for cross-bank transactions, while in-bank transfers often avoid these fees. Bank redirects, similar in operation to local bank transfers, usually carry minimal processing fees, influenced by national e-commerce policies.

For example, Singapore's PayNow service was free of transaction fees from its launch in July 2017 until January 2021, under a full subsidy. However, a nominal fee of SGD0.22 was introduced in 2022 to cover gateway pricing models adjustments.1

2. Card Processing Fees

Credit card processing fees are another critical aspect of payment gateway costs. Merchants may apply a surcharge for transactions using card networks like Mastercard or Visa. For instance, as of 2024, credit card processing fees for merchants range from 1.3% to 3.5%, depending on the card and transaction type.2

3. Wire Transfer Costs

The cost of wire transfers, particularly for international payments, is a notable part of gateway costs. Domestic wire transfers generally incur lower fees and are processed faster compared to international transfers, highlighting the variability of bank surcharges across different institutions.3

International Transaction Fees and FX Costs

When transactions span multiple geographic regions involving different currencies, international transaction fees and currency exchange costs, or FX costs, are inevitable. Payment gateways often manage these costs by adding a percentage-based fee over the market’s FX rate, or by setting their own buy and sell rates.

This adjustment allows payment gateways to cover the risks and operations involved in currency conversion, forming a significant portion of the payment gateway costs. Understanding these fees is crucial for businesses operating internationally, as they can impact the total cost of transactions significantly.

Gateway Setup Fees

Setup fees are a common initial cost associated with various online payment methods, including payment links and payment APIs. These fees often reflect the technical expertise required for integration and the complexity of the setup, especially in sophisticated online marketplaces and platforms.

In Malaysia, the variability in gateway setup fees is evident, with the top ten online payment methods charging anywhere from zero to RM300 per year.4 This range illustrates the diverse pricing models that payment gateways employ based on the services and technology they provide.

Making Informed Choices in Payment Gateways

With a clear understanding of the various payment gateway costs, including transaction fees, setup fees, and FX costs, you are now equipped to make more informed decisions when selecting a payment gateway that offers the best value for your money.

As you consider your options, take a look at Tazapay. Tazapay offers competitive platform fees at just 0.8 - 2.5% for non-card payments and 3.8% + $0.50 for card transactions. Moreover, it provides some of the lowest FX rates in the market and even promises to match any better rates you might find. Making the right choice for your payment gateway could mean the difference in creating significant savings and efficiency for your business operations.



Sources

1 2020 E-commerce Payments Trends Report: Singapore Country Insights (jpmorgan.com)

2 https://www.fool.com/the-ascent/research/average-credit-card-processing-fees-costs-america/

3 Wire Transfer Definition (investopedia.com)

4 Top 10 Online Payment Methods in Malaysia for Ecommerce - ZCOM MY Blog