India’s credit card user base crossed the 47 million mark in 2019 & the market is expected to expand at a Compounded Annual Growth Rate (CAGR) of over 25% by 2025. At the same time, the volume of debit card transactions is estimated to grow at a CAGR of 52% by 2025.
The number of credit or debit cards being issued each year and the volume of payments is only set to rise. According to a PwC report, the volume of credit card transactions is projected to increase to 3,205 million, and the value of transactions will cross Rs 10,096 billion by 2025. Viz-a-viz, the debit card transactions are set to grow to a volume of 7,585 million by 2025.
The popularity of using credit at no extra cost and the growing tendency of purchasing items on EMI has made credit cards a much sought-after choice of payment for millions of Indians. All that a customer does is swipe their card or enter their details for an online transaction to be successfully completed via a payment gateway.
Therefore, merchants can no longer afford to ignore cards as a mode of payment. They have started adding international credit cards like American Express to their payment gateways to attract an elite and broader customer base.
Payment Gateway charges for Credit and Debit Cards
Payment gateways are vital for e-commerce growth since they play an essential role in card processing. They securely transfer credit and debit card information between issuing and acquiring banks to complete a transaction.
Although swiping the card and paying takes only a few seconds, there is a lot of action that happens on the backend. When a user swipes the card or enters card information to complete the transaction, they are redirected to a payment gateway. The transaction is then forwarded to the card association.
While payment gateways help facilitate the card transaction, merchants need to know about different payment gateway charges levied on them when their customers make credit or debit card payments.
Merchant Discount Rate (MDR)
When a buyer swipes their card at a PoS terminal or enters their card information on a payment gateway, a small percentage of the transaction amount is charged to the seller. This is also known as the Merchant Discount Rate (MDR).
MDR is the cost levied on the merchant by a payment gateway to execute a transaction. It is the percentage of the total payment completed on the gateway. The discount rates range from 1.5% to 4%, depending on the type of credit card and the network provider. This charge is usually split among the many parties involved in the credit or debit card transaction, such as the issuing bank, the acquiring bank, and the gateway services provider.
However, the vital thing to remember is that the MDR is negotiable. Merchants can negotiate the percentage deducted with their bank based on factors like volume and amount of transactions.
When a card is used for payment, the transaction amount is transferred from the issuing bank to the acquiring bank. The process is seamlessly hosted by card network providers like Visa and Mastercard. Now, the acquiring bank is making a profit with the funds collected from the issuing bank. On the other hand, the issuing bank will profit by charging an ‘interchange fee.’
An interchange fee is a charge that an issuing bank collects from an acquiring bank to complete a transaction. It comprises a certain percentage of the transaction amount and another specific charge. Credit cards levy an average interchange fee of 1.81%, while debit cards charge an average of 0.3%.
Banks that issue a credit card or a debit card collaborate with an issuing institution like American Express, Mastercard, Visa, and Rupay. Therefore, these issuing institutions charge a small fee to the banks for each transaction done with the card. This fee is known as the Switching Fee or Processing Fee. Many banking institutions also use the term Routing Fee for the same. The fees range from 0.15% to 1.00%, depending on the issuing institution and the bank that issues the card.
Payment Service Provider (PSP) fee
A Payment Service Provider or a PSP acts as an aggregator between businesses and the end customer and enables the transaction. PSPs help businesses accept online payments via multiple payment modes in a highly secure manner. For this, PSPs charge a very nominal fee that may be fixed or depend on the number of transactions.
Other charges for credit and debit card payments
Set-up and maintenance charge
While the set-up fee is a one-time cost, maintenance fees have to be paid annually as a payment gateway charge. This is a fee that the merchant has to shell out to enable credit and debit card transactions on the payment gateway they use. The charges may vary based on the merchant’s services chosen. Many payment gateways provide extra services such as risk management, fraud monitoring, and other services for an additional fee.
Zaakpay is an exceptional payment gateway service provider that does not charge any set-up fee or a maintenance charge for the merchants.
A comprehensive comparison of credit & debit card processing fees across payment gateways can help make the best choice in the cross-section of maintenance fees, merchant discount rates, and set-up fees.
From the purview of discount fees, domestic credit card transactions facilitated by MasterCard and Visa carry a charge of 0.5% – 2%. There is zero transaction charge for using Rupay cards, while the fee for using international credit cards like American Express is 2.9%
It is imperative to consider integration, seamlessness, security, and optimization when choosing the ideal payment gateway. This may also vary depending on the volume of transactions, the scale of business, and the sales volume.