Payment gateway fees: What businesses need to know

Key takeaways

• A payment gateway lets your business accept credit and debit card payments online by securely transmitting card details to your payment processor.

• While payment gateways are essential to accepting card payments, they come with fees. Common fee types include transaction, monthly subscription, setup, and annual maintenance fees.

• Payment gateway fees can add up over time and eat into your business’s profits. So, it’s important to fully understand your contract and choose a payment processor that provides maximum value for the fees you pay.

A payment gateway is essential if you want to sell goods or services online. It’s the only way to accept credit or debit card payments in your online store.

However, payment gateways aren’t free. They come with many different types of fees, which can add up fast and cut into your profits. Understanding what these fees are and how they work is a key part of reducing payment processing costs and improving your business’s cash flow.

This guide explains different types of payment gateway fees, what influences pricing, and how to optimise your payment strategy to keep more revenue in your business. By the end, you'll know how to choose the right payment gateway, negotiate better rates, and improve efficiency without unnecessary costs.

What is a payment gateway?

A payment gateway is required to accept credit and debit card payments online. In essence, it’s a digital version of the point-of-sale (POS) your business uses to process card transactions in person.

Your payment gateway is built into your online checkout. After a customer enters their card details and clicks ‘buy’, the payment information is encrypted and sent to both your bank and your customer’s bank for approval. The gateway then confirms the approved payment to you and your customer.

What is a payment gateway fee?

A payment gateway fee is what businesses pay for using a payment gateway to process online card payments. It usually consists of a small percentage of the transaction amount and a fixed fee for each payment.

Types of payment gateway fees

When you use a payment gateway to process payments, you’ll typically receive a monthly statement with a variety of different fees on it. It’s important to understand these so you know exactly what you’re paying for and why. Here’s a breakdown of the most common fees you might come across.

• Transaction fees: These typically include a percentage of each sale plus a fixed amount per transaction. Rates vary by payment gateway provider and payment method (credit card, debit card, etc.). Transaction fees can significantly impact your operating costs, so be sure to carefully compare the fee structures of the different providers you’re considering.

• Monthly fees: Some payment gateways charge a monthly fee for access to their platform. This fee covers features like access to the software, customer support, and reporting tools. 

• Setup fees: Many payment gateways charge a one-time setup fee to integrate their services with your website or payment system. This fee covers the cost of initial configuration and any setup assistance you might need.

• Annual maintenance fees: Similar to monthly fees, these are paid annually to cover costs like operations, software maintenance, and customer support.

• Chargeback fees: If a customer disputes a transaction and initiates a chargeback (a reverse of their transaction), the merchant may incur a chargeback fee. This compensates the payment gateway for the administration of the chargeback process.

• Refund fees: Some gateways charge a fee when processing a refund. This is because the gateway still has to use resources to handle the transaction, even though it’s being reversed.

• Instant payout fees: Card transactions take a few days to settle, but some payment processors will offer to send money to your business bank account immediately. This has benefits for cash flow, but comes at a cost.

• PCI compliance fees: Payment gateways may charge a fee to keep your business compliant with the Payment Card Industry Data Security Standards (PCI DSS). This ensures that sensitive payment information is always securely handled. 

• International transaction fees: For cross-border payments, some payment gateways will charge additional (and often high) fees for currency conversion, international transactions, and handling different payment methods. These fees can include both a percentage of the total transaction amount and a fixed charge per transaction.

• Termination fees: Many payment processors require long-term contracts to use their payment gateways. If you try to terminate your contract early, you may have to pay a fee to compensate your processor for the loss of business.

Factors that influence payment gateway fees

There are many reasons payment gateway fees can vary and fluctuate over time. Understanding the factors that influence these changes helps you make smarter choices when it comes to payment processing, lowering your payment gateway fees, and improving your bottom line.

• Transaction volume: One of the biggest factors affecting payment gateway fees is transaction volume. The more transactions a business processes, the better rates it can negotiate with its payment processing provider. Larger businesses with high transaction volumes are seen as lower-risk and more profitable for payment providers, so they may enjoy discounted rates. In comparison, smaller businesses with fewer transactions might face higher fees.

• Average transaction size: If your business typically handles large transactions, payment providers might charge lower fees per transaction because the larger amounts help balance overall risk and costs. On the other hand, if you're processing lots of small transactions, the fee per transaction can be higher because the processing costs are spread over a smaller amount.

• Business industry type: Some industries are considered higher risk than others, like travel, gambling, or subscription services. This is because they’re more prone to fraud or chargebacks. Businesses are categorised by risk level using merchant category codes. Because of the higher risk, payment providers may charge higher fees to cover potential losses. Lower-risk industries, like retail or professional services, may enjoy more competitive rates due to their perceived stability.

• Accepted payment methods: Credit and debit card payments generally incur higher payment gateway fees due to the fraud prevention and security measures required to process them. Accepting alternative payment methods, such as ACH transfers or digital wallets (e.g., Apple Pay), might reduce fees. Basically, the more payment types you accept, the more likely you are to incur varying fees depending on the method used.

• Chargeback history: Chargebacks occur when customers dispute transactions, and payment processors might consider businesses with high chargeback rates to be risky. If your business has numerous chargebacks, the payment provider may charge you higher payment gateway fees to offset the added risk and administrative work involved in resolving these disputes.

How the payment gateway process works

Online payments feel instant, but behind the scenes, multiple systems work together to process each transaction. Let’s walk through the steps involved in an online payment, highlighting where payment gateway fees come into play.

1. The customer makes a purchase: When a customer purchases on a website, they add their items to the cart and head to the online checkout. They enter their payment details (such as their credit card information) into the payment form.

2. Information is sent to the payment gateway: Once the customer submits their payment, the gateway securely encrypts the customer’s payment information, making sure it’s protected and that there are no clear signs of fraud.

3. Information is sent to the acquiring bank: The payment gateway sends the encrypted payment information to the acquiring bank (the merchant’s bank). The acquiring bank then acts as the merchant’s financial partner, helping to manage the flow of funds.

4. The acquiring bank requests authorisation from the card network: The acquiring bank sends the payment request to the card network (such as Visa, Mastercard, or American Express), which then routes the request to the issuing bank (the customer’s). The issuing bank checks whether the customer has sufficient funds or credit to make the payment, and then sends the authorisation response back through the card network.

5. The payment is either approved or declined: If approved, the authorisation goes back to the acquiring bank, which then passes it to the payment gateway, notifying the merchant that they can complete the transaction. If the payment is declined, the payment gateway will let the customer know they need to try again with a different payment method.

6. Payment gateway fees are deducted: The payment gateway usually takes a small percentage of the transaction (around 2–3%), plus a fixed fee per transaction.

7. Funds are transferred: Once the transaction is approved, the funds are transferred from the customer’s bank account to the acquiring bank, and then to the merchant’s account. This can take anywhere from a few hours to a couple of days, depending on the payment method and the financial institutions involved in the transaction.

8. The merchant receives payment: Finally, the merchant receives the payment, minus any fees.

Where does the payment gateway fee fit in the overall process?

Payment gateway fees cover your payment processor’s costs for the technology, including the measures needed to securely handle, verify, and process sensitive financial data. They also cover the costs for your customer’s bank, your bank, and the card network to facilitate the transaction. 

Who gets a cut of the payment gateway fee?

The payment gateway fee is shared among different entities in the payment process.

1. The payment gateway provider takes a portion for handling the transaction and providing the platform.

2. Then, the issuing bank (the customer’s bank) gets a share for authorising the payment and sending money.

3. The acquiring bank (your bank) also gets a share of the fee for processing the payment on your business’s behalf.

4. Finally, the card networks (such as Visa, Mastercard, or American Express) charge a small fee to manage communication between the issuing bank and your bank.

So, as you can see, it’s not just one entity handling everything. Multiple players, each taking a small cut of the payment gateway fee, work together to make sure payments are processed securely and efficiently.

How to choose the right payment gateway

It’s easy to focus on fees when choosing a payment gateway, but cost alone shouldn’t drive your decision. The right provider depends on your business’s needs. To find the best fit for your specific requirements and business goals, you should take other factors into account, such as security, accepted payment methods, integration, customer support, value-added features, and system reliability.

Check that the payment gateway offers a variety of payment methods

77% of consumers claim they will likely abandon their cart if their preferred payment method is unavailable. Choose a gateway that supports a variety of payment options, including credit and debit cards, digital wallets like PayPal or Apple Pay, and bank transfers.

Ask whether it supports multiple currencies

If you’re selling globally, your provider should efficiently and cost-effectively handle multiple currencies and international transactions, ideally with competitive exchange rates and low fees for cross-border payments. For example, Airwallex charges a rate ‌of 1.65% + A$0.30 for domestic transactions and 3.40% + A$0.30 for international transactions, which is generally lower than other major players in the market. 

Check that the payment gateway integrates with existing systems

Your payment gateway should seamlessly integrate with your eCommerce platform, accounting software, and Customer Relationship Management (CRM) tools. This integration will save your team time, reduce manual errors, and make it easier to track your cash flow.

Look for a payment gateway with robust security measures

To keep your customers’ sensitive financial information safe – and help protect your business from fraud or data breaches – look for a provider that offers robust fraud protection, data encryption, and PCI DSS (Payment Card Industry Data Security Standard) compliance.

Look for great customer support

Look for a payment gateway with accessible, responsive customer service that can assist you with any technical issues or questions – ideally with 24/7 availability. Having good support can save you a lot of time and frustration down the line!

Check that the payment gateway can grow with your business

Can the provider grow with your business as your transaction volume increases or your business needs evolve? A scalable solution will help you avoid the hassle (and potential cost) of switching providers as your business expands.

Common payment gateway fee mistakes to avoid

When managing payment gateway fees, the wrong choice can lead to higher fees, operational inefficiencies, and slowed business growth over time. Here are some common errors businesses make when choosing a payment gateway:

Ignoring contract terms

One of the common pitfalls is not thoroughly reviewing the payment gateway contract. It's easy to overlook hidden fees or terms, such as cancellation fees, monthly fees, or charges for extra services.

While choosing a payment gateway with no monthly fees in Australia seems like a way to save money, you’ll usually end up paying higher transaction fees. These can really add up as your business grows.

Some contracts have automatic renewal clauses that unknowingly lock you into unfavourable terms. To avoid this, always read the fine print before signing. Don’t be afraid to ask your payment processing provider to clarify any terms, and make sure you fully understand what you’re agreeing to. When in doubt, consult a legal or financial adviser.

Not comparing payment gateway providers

Many businesses stick with their current payment gateway provider out of convenience. This complacency can lead to overpaying. Payment gateways vary significantly in terms of pricing, service offerings, and transaction costs, so failing to conduct a thorough payment gateway fees comparison can result in missing out on lower fees or more advanced features.

To avoid this, be sure to shop around for the best provider. Compare transaction fees, monthly charges, customer support options, and security features. Even if you’re happy with your current provider, it’s worth assessing your options every so often to ensure you’re still getting the best deal.

Choosing the wrong pricing model

Payment gateways offer different pricing models for interchange fees, which are the transaction fees that merchants are charged when accepting card payments from customers. To avoid paying unnecessary fees, carefully evaluate which interchange fee pricing model suits your business. The two most common models are tiered pricing and interchange-plus pricing.

• Tiered pricing groups transactions into different categories based on risk and reward factors, such as ‘qualified’, ‘mid-qualified’, and ‘non-qualified’. As your business grows and your transaction types change, you could be bumped into a higher tier, which means higher fees. This model can make it difficult for businesses to predict costs because rates fluctuate.

• Interchange-plus pricing, on the other hand, is more transparent. You pay the interchange fee (set by the card networks) plus a fixed markup by the payment gateway. You can see a breakdown of the fees from the card issuer, card network, and acquirer for each transaction. While it can have a higher initial rate, it’s more predictable and often more cost-effective in the long run for businesses with higher transaction volumes.

Not regularly taking stock of your payment processes

Once you’ve chosen a payment gateway, it’s easy to just set it and forget it. However, payment gateway fees can change over time, and new hidden charges may appear. Be sure to regularly review your statements, track your transaction fees, and watch for any changes in your payment gateway fee billing. This will help you ‌spot any irregularities early and let you take action before fees get out of hand.

Overlooking customer support and service

Cheaper payment gateways aren’t always the best option if their customer service is poor. When things go wrong (whether it’s a technical issue or a transaction dispute), you want a provider that’s helpful and responsive – ASAP. Poor customer service can lead to extended downtimes or unresolved issues that affect your cash flow, ultimately costing you more in the short term than paying a little extra for better support in the long term.

Cut down payment gateway fees with Airwallex

Our fee structure is transparent and competitively priced compared to some other major providers for both domestic and international transactions. Airwallex Payments also comes with fraud detection tools to minimise chargebacks and security tools that are monitored 24/7.

As well as low and transparent costs, here’s how we provide more value to businesses:

Cost-saving multi-currency accounts and FX

When businesses sell internationally, many payment providers will require them to set up additional local bank accounts to accept funds in multiple currencies. With Airwallex, businesses can skip this manual process and cut their payment gateway fees down with built-in multi-currency Global Accounts. Businesses won’t pay any forced currency conversion fees when they settle payments in the same currencies as their customers’. They can then pay out from the same balances without any currency conversions. When businesses need to convert funds, they can do so with market-leading FX rates for 60+ trade currencies and save up to 80% on fees.

Global coverage with 160+ local payment methods

Businesses can grow their global reach through payment processing with all major card schemes, including Visa, Mastercard, and Amex, as well as 160+ local payment methods in 180+ countries. This widespread coverage means businesses can avoid having to change providers or pay for multiple providers as they grow into new markets.

Seamless integration with no-code, low-code, and fully customisable options

We help businesses get started ‌in minutes with no-code, low-code, or fully customisable solutions, ranging from Payment Links and Plugins to Payments APIs to build their own solution. We also offer 24/7 customer support if businesses ever need a hand.

Airwallex is more than just a payment gateway. It’s a comprehensive payment partner with tools that let businesses receive, hold, transfer, and manage multi-currency funds all in one place. Not only does this save businesses fees for subscribing to multiple platforms, but it'll also save them the hours spent managing them all.

Frequently asked questions

Does my business need a payment gateway?

You need a payment gateway to accept credit or debit card payments online. You can accept online payments from some e-wallets without a payment gateway, but for many customers, this isn’t convenient.

Can I pass payment gateway fees onto customers?

In Australia, you can pass payment gateway fees onto customers for credit cards, but not for debit cards¹. Credit card surcharges must be no greater than your actual processing cost and must be disclosed to customers.

What is the cheapest way to accept online payments?

The cheapest way to accept online payments is through electronic bank transfers. However, bank transfers are inconvenient for many customers. If you want to accept card payments, you’ll need a payment gateway, and you must pay associated fees.

Sources

http://www.accc.gov.au/consumers/pricing/card-surcharges

https://www.airwallex.com/newsroom/cross-border-ecommerce-2024-report