Give breakup of payment gateway charges applied on each transaction?

💳 Understanding the Breakup of Payment Gateway Charges on Each Transaction

When a customer makes an online payment—whether via credit card, UPI, debit card, or net banking—a complex financial mechanism processes that transaction behind the scenes. At the center of this process is the payment gateway, which acts as the intermediary between the customer, merchant, bank, and card network.

But what exactly are the charges that merchants pay to accept online payments? Let’s break it down in detail.

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🧾 What Are Payment Gateway Charges?

Payment gateway charges are transaction processing fees levied by service providers like Razorpay, PayU, Stripe, PhonePe Business, etc., for enabling digital payments. These fees vary based on:

• Payment method (credit card, UPI, etc.)

• Type of card (domestic vs international)

• Volume of transactions

• Type of business or industry

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🧮 Typical Breakup of Charges

Here’s how the fee is typically broken down per transaction of ₹1,000 as an example:

1. Merchant Discount Rate (MDR)

This is the total fee charged by the acquiring bank, card network, and payment gateway. The MDR varies by payment method:

Payment Mode	Typical MDR (India)
UPI	0% – 1.1% (merchant dependent)
Debit Cards (Domestic)	0.4% – 0.9%
Credit Cards (Domestic)	1.5% – 2.5%
International Cards	3% – 4%
Net Banking	1.75% – 2%
Wallets (Paytm, etc.)	2.5% – 3%

Example (Credit Card):

If the MDR is 2% on a ₹1,000 transaction:

• ₹980 is credited to the merchant’s account.

• ₹20 is split between multiple stakeholders, as shown below.

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🔍 Detailed Component Breakdown of MDR

Let’s understand who earns what from the ₹20 fee charged:

A. Payment Gateway Fee (Service Provider Fee) – ~10%–20% of MDR

• Providers like Razorpay, Stripe, PayU take a cut for their service.

• Example: ₹3 – ₹4 per ₹1,000 transaction

B. Acquiring Bank Fee – ~10%–30% of MDR

• This is the bank that facilitates the transaction for the merchant.

• Example: ₹5 – ₹7 per ₹1,000 transaction

C. Card Network Fee (Visa, Mastercard, RuPay) – ~10%–20% of MDR

• Charges for routing transactions via card networks.

• Example: ₹2 – ₹3 per ₹1,000 transaction

D. Issuing Bank Fee – ~40%–60% of MDR

• This is the customer’s bank that issued the card and funds the transaction.

• They take the largest share.

• Example: ₹10 – ₹12 per ₹1,000 transaction

Note: UPI transactions don’t follow the same breakup, but starting from April 1, 2023, a 1.1% interchange fee may apply for certain merchant transactions over ₹2,000 (only when routed through wallets like GPay/PhonePe and only for large businesses).

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🧾 GST on Payment Gateway Fees

On top of the MDR, the payment gateway provider also charges 18% GST on the MDR.

Example:

• MDR: ₹20

• GST on MDR (18%): ₹3.60

• Total Fee: ₹23.60

This GST is borne by the merchant and is usually reclaimable under Input Tax Credit (ITC) in GST filings (if the business is GST-registered).

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💼 Real-World Examples

📌 Razorpay (as of 2024–2025):

Payment Mode	Charge
Credit Cards	2% + GST
International Cards	3% + GST
UPI	0% – 1%
Wallets	2.9% + GST

GST Applied: 18% on transaction charges.

Source: Razorpay Pricing

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🏦 Interchange vs MDR – What's the Difference?

• MDR is what the merchant pays.

• Interchange Fee is the portion of MDR that goes to the issuing bank.

• The interchange rate is decided by the card network (e.g., Visa may charge 0.8%–1.5% depending on sector and card type).

• The payment gateway manages and splits these fees behind the scenes.

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🔄 Settlement Time

Though the gateway deducts fees instantly, the settlement of the remaining amount to the merchant’s bank usually happens in:

• T+1 to T+3 days for Indian merchants

• T+7 or more for international merchants (depending on provider & risk profile)

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🧠 Factors That Influence Charges

1. Business Category – High-risk businesses (gambling, crypto, etc.) face higher MDR.

2. Monthly Volume – Higher volume may lead to negotiated lower MDR.

3. Payment Method – Credit cards have the highest fees.

4. Currency & Location – International cards & currency conversion lead to higher costs.

5. Custom Integrations – Some providers charge integration/maintenance fees.

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📉 Can You Reduce These Charges?

Yes, here’s how:

1. Negotiate Rates – If you process high volumes (₹5 lakh+/month), you can negotiate with your provider.

2. Use UPI – Cheapest mode; encourages faster settlements and lower fees.

3. Use Aggregators Wisely – Compare charges from Razorpay, PayU, CCAvenue, Instamojo, Stripe, etc.

4. Choose Direct Bank PGs – HDFC, ICICI offer PG services with lower MDR for their account holders.

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📌 Summary: Charges Breakdown for ₹1,000 Transaction (Credit Card)

Component	Amount (INR)
MDR (2%)	₹20
GST (18% on ₹20)	₹3.60
Total Fee	₹23.60
Net Payout to Merchant	₹976.40

🔗 Useful Resources

• RBI Circular on MDR

• NPCI UPI Interchange Circular (2023)

• Razorpay Pricing Page

• PayU Pricing

• Stripe India Pricing