Understanding Payment Processing Costs

Study Notes

We pay processing costs to third parties called payment service providers (PSPs) like Stripe, Adyen, and Checkout.com which are our current partners.
These third parties allow us to collect the money from our end customers’ cards.
These costs are composed of :
The mark-up of the PSP, - i.e. their margin, the money they make for providing this service - which is composed of :
Variable fees (X% on the total amount of the transaction)
Fixed fees (Y€ for each transaction, so for a P4X Alma pays 4*Y€)
NB: the smaller the average basket of the merchant is, the more it will cost us because the fixed costs remain the same.
The network costs (Visa, Mastercard, CB) which are composed of :
The interchange (different depending on the type of card used: debit, credit, commercial, business, French, foreign, etc.)
The scheme fees (full of different costs depending on whether there is a 3DS, or other stuff).
PSPs charge these fees to Alma but are themselves charged these fees by card networks like Visa & Mastercard. We have estimated this interchange cost today for all of Alma to be around 31 bps (depending on the mix of cards our end customers use).
Cost of cash = 0.46% or 1.38€ (14% of the fees)
Risk loss = 0.47% or 1.42€ (14% of the fees)
Other costs = (a) Payouts costs
(b) KYC costs
(c) Variable ops costs
TPV is 300€ and commissions are 3.40% of TPV, resulting in 10.20€ of revenue
Costs are 2.04% of TPV, resulting in 6.12€ of expenses
Transaction Margin is 1.36% of TPV, resulting in 4.07€ of profit

Description

Learn about the breakdown of processing costs incurred by payment service providers (PSPs) like Stripe, Adyen, and Checkout.com. Explore the components including mark-up fees, network costs (interchange and scheme fees), as well as additional costs like cost of cash, risk loss, and other operational expenses.