Payment processor revenue

Every card payment at a shop or website passes through a chain: the merchant's processor, the card scheme and the bank that issued the card, each taking a share of the fee. How a processor presents that chain in its income statement can make its revenue three or four times larger or smaller, without changing its profit. This guide explains the principal or agent analysis for interchange and scheme fees, works through a month of card payments both ways, and covers pricing models, incentives to merchants and from schemes, chargebacks and merchant failure, other income and US GAAP.

By Mirza Fahad Baig, Chartered Accountant. Reviewed by Hamza Fida, Chartered Accountant. 4 minute read.

Short answer

Payment processor revenue, for merchant acquirers and payment platforms, comes mainly from the fee a merchant pays on each card payment. Part of that fee is passed to the card issuer as interchange and to the card scheme as scheme or network fees. Under IFRS 15, the processor decides whether it is the principal for an integrated payment service, in which case it reports the whole merchant fee as revenue and interchange and scheme fees as costs, or whether it arranges for the issuer and scheme to provide their part, in which case it reports revenue net of those fees. The answer depends on whether it controls the service before it reaches the merchant, its responsibility to the merchant and its discretion over price, and practice differs. In this guide's example, US$ 100 million of card payments produce revenue of 2,500 thousand gross or 700 thousand net.

At a glance

Merchant fee
Revenue for the processor
Interchange and scheme fees
Cost or deduction?
Principal
Gross revenue, fees as costs
Agent for issuer and scheme
Revenue net of fees
Merchant incentives
Reduce revenue over the contract
Chargebacks
Credit exposure to merchants
Payment processor revenueMerchant fee: Revenue for the processor; Interchange and scheme fees: Cost or deduction?; Principal: Gross revenue, fees as costs; Agent for issuer and scheme: Revenue net of fees; Merchant incentives: Reduce revenue over the contract; Chargebacks: Credit exposure to merchants.KEY FACTS AT A GLANCEPayment processor revenueMerchant feeRevenue for the processorInterchange and scheme feesCost or deduction?PrincipalGross revenue, fees ascostsAgent for issuer and schemeRevenue net of feesMerchant incentivesReduce revenue over thecontractChargebacksCredit exposure tomerchantsTax BakersPayment processor revenueMerchant fee: Revenue for the processor; Interchange and scheme fees: Cost or deduction?; Principal: Gross revenue, fees as costs; Agent for issuer and scheme: Revenue net of fees; Merchant incentives: Reduce revenue over the contract; Chargebacks: Credit exposure to merchants.KEY FACTS AT A GLANCEPayment processor revenueMerchant feeRevenue for the processorInterchange and scheme feesCost or deduction?PrincipalGross revenue, fees as costsAgent for issuer and schemeRevenue net of feesMerchant incentivesReduce revenue over the contractChargebacksCredit exposure to merchantsTax Bakers
Key facts at a glance, as set out in this guide.

How does a card payment flow?

When a customer pays a merchant by card, the merchant's processor, or acquirer, obtains authorisation through the card scheme from the bank that issued the card, then settles the funds to the merchant. The merchant pays a fee, the merchant discount rate, on each payment. Out of it, the processor pays interchange to the issuing bank, at rates set by the schemes or by regulation, and scheme fees to the card network, and keeps the rest. See fintech accounting.

Is the processor a principal or an agent for interchange?

Under IFRS 15, the processor first identifies the specified service it provides to the merchant, then asks whether it controls that service before it is transferred. Arguments for the principal view are that the processor contracts with the merchant for a single, integrated payment service, is responsible to the merchant for it, and bears the merchant's credit risk. Arguments for the agent view are that the issuing bank's authorisation and the scheme's network are services the processor arranges but does not control, and that interchange and scheme fees are set by others and passed through. See principal versus agent.

Payment processor revenue: a month of card payments

A processor handles US$ 100,000 thousand of card payments for its merchants in a month. Merchants pay a fee of 2.5% of the value. The processor pays interchange of 1.6% to card issuers and scheme fees of 0.2% to the card networks.

Revenue and fees passed on for the month (US$ thousand)Revenue and fees passed on for the month (US$ thousand)2,5001,800Principal: gross7000Agent: netRevenueInterchange and scheme fees as costs
Same profit, very different revenue.
US$ thousandPrincipal: grossAgent: net
Revenue2,500700
Interchange(1,600)Deducted from revenue
Scheme fees(200)Deducted from revenue
Net revenue after fees700700

Profit is the same either way. Reported revenue is 2,500 thousand as principal and 700 thousand as agent, so growth rates, margins and revenue multiples look very different. Processors that report gross often also present net revenue after interchange and scheme fees as an additional measure, which must then be reconciled to the IFRS figures. See management-defined performance measures.

Does the pricing model matter?

It is one of the strongest pieces of evidence. Under interchange-plus pricing, the merchant pays the actual interchange and scheme fees passed through at cost, plus a separate processor margin: the processor has no discretion over most of the price and no risk if interchange changes, which supports the agent view. Under blended pricing, the merchant pays a single rate and the processor bears the risk that interchange costs are higher or lower than expected, which supports the principal view. Some processors with both models report differently for each.

How are incentives treated?

Signing bonuses and other incentives paid to merchants are consideration payable to a customer: the processor recognises an asset and releases it against revenue over the expected contract term. Incentives the processor receives from card schemes for volume commitments reduce the cost of scheme fees, recognised as the processor earns them. Volume-tiered pricing for merchants is variable consideration, estimated across the contract.

What about chargebacks and merchant failure?

If a cardholder disputes a payment and the merchant cannot refund it, for example because the merchant has failed, the processor usually bears the loss. Processors that accept payments in advance for goods or services delivered later, such as airline tickets, are exposed to large losses if the merchant fails before delivering. They manage this with reserves held back from settlements and collateral, and recognise expected credit losses on amounts due from merchants under IFRS 9. Cash held for merchants before settlement raises the same safeguarding questions as e-money. See e-money and safeguarded funds.

What other revenue do processors earn?

Currency conversion fees are revenue when the payment is processed. Fees for chargeback handling, fraud tools and reporting are recognised as provided. Sales of card terminals are revenue on delivery, while terminals provided under rental contracts may be leases. Interest on merchants' funds held before settlement and on merchant cash advances is interest income under IFRS 9. See lessor accounting.

How does US GAAP differ?

ASC 606 uses the same control analysis. Practice among US processors also varies: many present revenue net of interchange and network fees, concluding they are agents for those services, while others present gross and show the fees as costs. Investors therefore compare processors on net revenue or on fees as a percentage of payment volume. See ASC 606 principal versus agent. Wallets that charge merchants and users face similar questions; see digital wallet revenue.

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Questions people ask

Is interchange a cost or a reduction of revenue for a payment processor?

It depends on whether the processor is the principal for an integrated payment service; principals show it as a cost, agents deduct it from revenue.

Does pricing affect gross or net presentation?

Yes. Blended pricing, where the processor bears the risk of interchange costs, supports gross; interchange-plus pricing supports net.

How are incentives paid to merchants accounted for?

As consideration payable to a customer: an asset released against revenue over the expected contract term.

Who bears chargebacks when a merchant fails?

Usually the processor, which recognises expected credit losses on amounts due from merchants and holds reserves to reduce the risk.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 15 Revenue from Contracts with Customers
  2. IFRS Foundation: IFRS 9 Financial Instruments
  3. FASB Accounting Standards Codification: Topic 606, Revenue from Contracts with Customers
  4. Financial Accounting Standards Board: Revenue recognition

Rules and fees change. If you are reading this long after October 10, 2026, confirm the figures with the source before you rely on them.

Fintech and cryptoFintech accounting: the key issuesIFRS 15Principal or agent: gross or net revenue under IFRS 15ASC 606Principal vs agent under ASC 606

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This guide is general information. It is not tax or legal advice for your situation.