Pricing a payment product: the cost stack and the price the customer sees

The price a customer pays for a payment is the top of a cost stack, and every layer of the stack is a real cost that someone must pay. For a cross-border payment the stack starts with the correspondent bank charge, then the scheme fee, then the foreign exchange spread, then the screening cost, then the operations cost, then the expected cost of exceptions, and finally the margin. A price that does not cover the stack loses money, and a price that is set without knowing the stack is a guess. The business analyst's first job in pricing is to build the stack, with a number for every layer. Interchange-plus pricing is the most transparent model for card acquiring. The merchant pays the interchange fee, plus the scheme fee, plus the acquirer's margin, and each component is shown separately on the statement. The merchant can see exactly what the scheme charged and what the acquirer kept. Blended pricing is the opposite: the merchant pays one flat percentage, and the acquirer absorbs the variation in interchange. Blended pricing is simpler for the merchant but hides the cost, and it is usually more expensive for merchants whose transactions are mostly low-cost debit. Tiered pricing sits between the two. The merchant pays a different rate for different card types: a lower rate for domestic debit, a higher rate for international credit, and a higher rate again for corporate cards. Tiered pricing is fairer than blended pricing, because the merchant pays for what they actually use, but it is harder to explain, and the merchant needs a statement that shows the tier for each transaction. The requirements must state the tiering logic, the statement format, and the dispute process for a transaction charged at the wrong tier. Foreign exchange pricing has its own stack. The mid-market rate is the reference, the provider adds a spread, and the customer sees the resulting rate. The spread is usually expressed in basis points, where one basis point is one hundredth of one percent. A spread of 100 basis points on a 10,000 dollar payment is 100 dollars. The regulatory direction in the EU and the UK is toward showing the spread explicitly, and the Cross-Border Payments Regulation requires the provider to show the total cost of a cross-border payment before the customer confirms it. The requirements must state exactly what the customer sees before they press send. Free payments are never free. When a consumer pays nothing for a domestic instant payment, the cost is paid by the bank, which recovers it from the account fee, the overdraft charge, or the interchange on the customer's card spending. When a merchant offers free delivery, the cost is in the product price. A product owner who claims a payment is free must be able to say who pays, because the regulator will ask, and the customer will ask when the free service is withdrawn. The requirements must state the funding model for a free service. Price changes are a regulatory event in payments. A scheme fee increase, an interchange change, or a correspondent charge increase must be passed through or absorbed, and the decision must be documented. In the EU, the Payment Services Directive requires the provider to give the customer two months notice of a price change, and the customer has the right to terminate the contract. The requirements must therefore include the price change notification process, the notice period, and the customer communication. Last reviewed 7 November 2026. Further reading: Regulation (EU) 2015/751; Regulation (EU) 2021/1230 on cross-border payments; the Payment Systems Regulator market reviews; the European Commission Cross-Border Payments Regulation.