As your business scales and order volumes increase, every transaction fee becomes more important. Payment gateway pricing, often viewed as a minor cost, can significantly impact your margins, especially in high-volume scenarios.
From flat fees and MDRs to refund penalties and settlement surcharges, understanding how these charges add up is essential to protecting profitability.
In this guide, we break down how payment gateway pricing works, compare common pricing models, and share practical tips to optimize costs and maximize margins at scale.
What does payment gateway pricing include?
Here’s a breakdown of typical components:
- MDR/TDR (Merchant/Transaction Discount Rate): Payment gateways charge 1.5%-3% MDR/TDR on every transaction users make through your platform.
- Flat fees per transaction: Some payment gateways may charge a flat fee for every transaction, regardless of the amount.
- Interchange and processing fees: These consist of fees paid to card networks and banks. Payment gateways usually bundle the interchange and processing fees into TDR.
- Settlement speed surcharges: This component may apply if you choose faster or same-day payment settlements instead of a 2-3-day standard cycle.
- One-time setup fees: When you create your account with a payment gateway, you will incur a one-time setup fee that covers configuration and integration with your sales system.
The payment gateway pricing tier depends on the size of your business. While small to medium-sized businesses may opt for Standard pricing, large businesses that handle high-volume transactions typically choose Enterprise pricing.
This table gives you an idea of payment gateway pricing per ₹1000.
| Fee Component | Rate/Amount | Cost on ₹1,000 Transaction |
| MDR/TDR | 2% | ₹20 |
| Flat fee per transaction | ₹5 | ₹5 |
| Interchange and processing fee (bundled) | 0.6% | ₹6 |
| Settlement speed surcharge | ₹2 | ₹2 |
| One-time setup fee | ₹500 | ₹5 |
| Monthly maintenance fee | ₹200 | ₹2 |
| Total cost (estimated) | Up to ₹40 |
Note: you will either pay an MDR or a flat fee per transaction, not both.
Factors affecting payment gateway costs
How much you end up paying depends on a few factors, such as:
- Location of the sender: Overseas transactions generally incur higher processing fees.
- Payment mode: The more modes you offer to your customers, the greater the fees you pay. For example, payment transactions made through bank transfers are relatively cheap. However, buy now, pay later (BNPL) is relatively costlier.
- Integrations: You might want to integrate your payment gateway with other apps, such as revenue protection, accounting, or tax calculations. All incur additional fees.
In addition to fees, consider other variables such as the payment success rate, security, and types of payment modes supported.
Flat fees vs. percentage-based pricing: Which works better?
The payment gateway pricing model that works best for you depends on several factors, including the type of business and the transaction value.
D2C or low-transaction-value businesses benefit from percentage-based pricing because a flat fee might completely erode their margins. On the other hand, if your business involves high-ticket transactions, you will likely benefit from a flat-fee model.
You may also want to explore blended pricing. In this model, you pay a fixed rate (let’s say, 2%) on each transaction, irrespective of which card your customer is using.
On the other hand, interchange-plus pricing has two components:
- Interchange fee, which is set by card networks or banks
- Plus, which is a fixed markup set by your chosen payment gateway
The blended pricing model is great for small businesses because it’s predictable, whereas interchange-plus is better for high-volume transactions.
The table below summarizes the difference between the flat fee vs. percentage-based pricing model:
| Flat-fee pricing | Percentage-based pricing | |
| Best for | High-ticket transactions, such as electronics and travel | Low-ticket items, such as food delivery |
| Cost predictability | High | Low (varies with the size of the transaction) |
| Margin friendliness | Better for high-value transactions | Better for small purchases and micro-payments |
Does high volume mean better margins?
It’s a common assumption that higher transaction volumes lead to better margins. But that’s not always the case.
When you’re processing thousands of orders, even the smallest fees add up. A charge as low as ₹0.50 per transaction can result in ₹5,000 in additional monthly costs for 10,000 orders.
Not just that. Factors such as payment retries, chargebacks, and refunds can silently erode your revenue. Why? Because every reversed or failed transaction still incurs operational overhead or processing fees.
They eat into your profit margins without you even realizing it. Ouch!
Now, let’s talk about the solution.
Optimizing payment gateway pricing for margins
If you aim to improve your margins, you need to start optimizing your payment gateway costs.
Here’s how you can do it:
- Negotiate: Don’t assume you’ll get better payment gateway pricing just because your business handles high-volume transactions. Always talk and negotiate the best price for your business. Don’t just negotiate for volume. Also, factor in your payment methods and business vertical.
- Choose a reliable payment gateway: This is an important one. You must choose a payment gateway that has a high payment success rate.
- Avoid multi-partner costs: Another great way to boost your margins is to consolidate all your payment modes under a single gateway.
- Encourage low-cost payment modes: Digital wallets and UPI have comparatively lower MDRs than credit cards. Encourage your customers to use these low-cost payment methods.
- Enable Smart Routing: This option allows you to automatically redirect failed transactions to an alternative gateway (also known as a fallback gateway).
- Track your metrics: Most payment gateways offer a dashboard that provides a visual report of success rates, refunds, cost per payment method, and other key metrics. Use this data to identify where your margins might be leaking.
Mistakes to avoid in gateway pricing contracts
There are certain mistakes to avoid when finalizing your payment gateway pricing.
Here are the top points to consider:
- Overlooking hidden or additional fees: Often buried in fine print, some gateways may charge you additional fees, such as currency conversion markups, platform fees, or technical fees, without clearly disclosing them.
- Not including an exit clause: Avoid committing to a long-term contract without including an exit clause that clearly states your agreement is subject to the gateway’s performance. This will allow you to choose a different partner if the service level or success rate of your current provider degrades.
- Ignoring bundled rates: Choosing blended pricing may seem the easiest option for you. But don’t forget to calculate the true cost per transaction, especially if you’re offering high-cost methods such as international credit cards.
- Not negotiating: As mentioned before, payment gateway pricing is often up for negotiation. But if you never ask, you’d never know. Always prefer custom pricing that best suits your risk profile and business’s size.
Final thoughts: Smart pricing strategy = Protected margins
When transaction volumes scale, every basis point matters. A smart payment gateway pricing strategy isn’t just about cost; it’s about margin protection, transparency, and long-term sustainability.
Choosing a reliable payment gateway with a high success rate is the most important step in optimizing your margins.
At Pine Labs, we help high-growth businesses optimize their payment infrastructure with secure, scalable, and cost-efficient solutions. From unified online and in-store payments to advanced routing and detailed analytics, our platform is designed to support your margin goals while delivering a seamless payment experience for your customers.
Connect with us for more details!