‘Digital store’, ‘online business’, ‘eCommerce’ and ‘payment gateways’ are some words that we’ve become too familiar with in the past few months. Why not? The year 2021 is a good year for starting your online business. Today, with the world going digital and everyone carrying out almost every task in the comfort of their smartphones, taking your business online or starting an online business is a good venture amidst all the negativities that have taunted us for the past few months. With platforms like Shopify and WooCommerce, building and running an online shop requires minimum effort, almost anyone can do it. As with any online business, selecting the right payment gateway is one of the crucial decisions to make when setting up your digital store.
Integrating a payment gateway on your website or app helps you accept online payments. Of course, this comes with a set of payment gateway charges that we only take into account while calculating the returns or profitability of our online store. But did you know that payment gateway fees can affect your bottom line and balance sheet? They are not always a fixed cost, but rather an expense with variable rates. So, what exactly do payment gateway charges mean and what are the different components of payment gateway fees?
What are payment gateway charges?
When a consumer pays for goods or services online, they will need to use either a credit card, debit card, PayPal account, or another payment method. The company that is selling the product or service will have to pay an amount of money for each transaction in order to accept these types of payments. This is where the payment gateway fee comes into play. It is usually determined as a percentage of the transaction amount and also varies as per the level of risk involved in the payment transaction and also the type of payment method used by the customers.
Different components of payment gateway fees
The payment gateway charges are based on several factors like interchange rate, the amount that credit card issuer such as Visa and Mastercard charges to the receiving bank for every credit card payment. There are also payment security charges and the merchant account fee that merchant account providers ask in addition to interchange rate depending on the business type and gross volume of transactions. All these factors contribute to the different components of payment gateway fees. Here are some of the terms associated with payment gateway charges you need to know:
Payment gateway setup charges
A payment gateway setup charge is a type of payment gateway charge that is levied one time at the time of payment gateway integration. This is usually charged to set up a merchant account.
Annual maintenance charges
Annual maintenance charge is a regular fee charged every year to the payment gateway provider for maintenance of software, security, payment technology and to cover operating expenses. This can be a monthly fee too.
Transaction discount rate
Transaction Discount Rate (TDR) or Merchant Discount Rate (MDR) is a fee that is charged by the payment gateway for processing the transactions to their bank account. It is based on the payment mode used by the customer and is usually a fixed percentage charge like 2% plus tax per transaction. For international transactions, the payment gateway might charge a slightly higher fee.
Integration charge is the fee that we pay to the payment gateway for integrating the payment gateway into a website or app. These charges vary on different payment gateways.
There are several payment gateways in India that facilitate transactions between merchants and financial institutions by providing access to credit card processing networks like Visa and MasterCard (and local equivalents) along with various banking clearinghouses worldwide. Knowing the different components of payment gateway charges will help you make a better decision when it comes to choosing the right payment gateway for your online shop.