Why are payment fees so high?

Have you ever wondered why payment processing fees are so high? For many businesses, these costs can significantly impact the bottom line. To understand the reasons behind the fees, we need to look at the complexity of traditional payment processing systems.

Multiple intermediaries in traditional payment systems

One of the primary reasons payment solutions are expensive is the involvement of multiple intermediaries. Each party involved in a transaction takes a cut, which adds to the overall cost. Here’s a breakdown of the intermediaries:

• The merchant: The business that sells the product or service, and receives the payment.
• A cardholder: The customer who wishes to purchase from the merchant.
• The issuing bank: The bank that issued the cardholder’s credit or debit card.
• An acquirer: The merchant’s bank, which processes payments on behalf of the merchant.
• Networks: Networks provide the infrastructure, rules and aggregates funds so not every issuer has to speak to each acquirer directly.

Breakdown of costs

Each intermediary charges a fee for their services, which accumulates as follows:

• Processing fees: These are fees charged by the merchant's gateway (service that authorizes credit card payments) for handling each transaction, irrespective of whether the transaction is approved or declined.
• Network fees: Also known as scheme fees, these are paid to the card networks for facilitating the transaction. There are multiple fees associated with this, covering different aspects of the transaction.
• Settlement fees: Charged by the acquiring bank, these fees cover the costs of settling the transaction and transferring funds to the merchant’s account.

Additional costs

Beyond the basic fees, businesses might encounter several hidden costs:

• Cross-border fees: Charged when a transaction involves parties in different countries.
• Currency conversion fees: Applied when a transaction involves different currencies, often an extra fee to the issuing bank for currency exchange.
• Fraud prevention fees: Costs associated with tools and services to detect and prevent fraudulent transactions.
• Chargeback fees: Costs incurred when a customer disputes a transaction and the amount is returned to their card. Merchants not only lose the sale but also incur additional fees for processing the chargeback.

Impact on businesses and the search for cost-effective solutions

For businesses, these fees can be a significant burden. High transaction costs can:

• Reduce profit margins: Higher costs eat into profits, making it harder for businesses to grow.
• Limit competitive pricing: Businesses might need to increase prices to cover transaction fees, which can make them less competitive.
• Inhibit expansion: High fees can deter businesses from expanding into new markets, especially internationally.

Given these challenges, many businesses are seeking more cost-effective payment solutions. Modern technologies offer promising alternatives by reducing the number of intermediaries involved in the transaction process.

Embedded wallets

Embedded wallets represent a significant advancement in payment processing, and are integrated directly into applications and platforms, allowing seamless and secure transactions within the ecosystem. By keeping transactions within the same environment, embedded wallets enhance user experience, reduce friction and lower costs associated with moving funds across different platforms.

Embedded wallets streamline the entire payment process by removing unnecessary steps and intermediaries. This direct integration enables businesses to offer a more cohesive and efficient transaction experience.

How Kiip kan reduce costs

Kiip offers an embedded wallet that can be integrated into other businesses´ services and apps. The technology we use can significantly lower transaction fees. Here’s how:

• Fewer intermediaries: The technology eliminates the need for multiple intermediaries, reducing the number of parties that take a cut.
• Lower fees: With fewer intermediaries, the overall transaction fees are much lower. In today's fast-paced digital economy, reducing costs while enhancing user experience can be crucial for success. By adopting Kiip's embedded wallet solution, businesses can revolutionize their payment processes, cut down on unnecessary fees and provide a seamless, modern transaction experience for their users.

If this sounds exciting, you can learn more about our pilot program here. Discover how you can be part of the revolution and transform your marketplace with Kiip's innovative technology. Let’s revolutionize the payment industry together!