Business models in payments: where the money comes from

Every payment product earns money in one of a small number of ways, and the business analyst must know which one applies, because it shapes every requirement. The most common model is the transaction fee, a fixed amount or a percentage of the payment value, charged to the sender, the receiver, or both. A card acquirer charges the merchant a percentage. A cross-border provider charges the sender a fee plus a foreign exchange spread. A domestic instant payment provider may charge nothing to the consumer and charge the bank instead. The fee model determines who the customer is and what they will tolerate. Interchange is the largest revenue stream in card payments, and it is also the most misunderstood. When a customer pays a merchant with a debit card, the merchant's bank, the acquirer, pays an interchange fee to the customer's bank, the issuer. The acquirer recovers that fee from the merchant as part of the merchant service charge. In the European Union and the United Kingdom, interchange is capped by law at 0.2 percent for consumer debit cards and 0.3 percent for consumer credit cards, under Regulation (EU) 2015/751. Outside the cap, interchange is set by the scheme and varies by card type, merchant category and channel. The foreign exchange spread is the hidden revenue in cross-border payments. When a customer sends 10,000 dollars and the provider converts it to euros, the provider does not use the mid-market rate. It uses a customer rate that is worse than the mid-market rate, and the difference is the spread. A spread of 1 percent on 10,000 dollars is 100 dollars, which is often larger than the stated fee. A product owner must decide whether to show the spread explicitly or to hide it in the rate, and the honest answer is that transparency is becoming a regulatory requirement in the EU and the UK. Software as a service is the model for payment infrastructure products. A payment hub, a screening engine, or a reconciliation tool is sold as a subscription, usually monthly or annual, with a fee per transaction on top. The subscription covers the platform, the per-transaction fee covers the variable cost, and the combination gives the vendor a predictable revenue and the customer a predictable cost. The requirements for a SaaS payment product must therefore include the billing model, the metering, and the invoice, because the customer will dispute the invoice if the metering is wrong. Float is the revenue from holding customer money. When a customer loads money onto a wallet, or when a payment sits in a suspense account overnight, the firm holds the money and earns interest on it. Float is real revenue, but it is regulated revenue: the money is client money, it must be safeguarded in a separate account, and the firm cannot use it for its own purposes. The requirements must state the safeguarding arrangement, the reconciliation of the safeguarding account, and what happens to the interest earned. The freemium and the platform models are newer. A payment app that is free for consumers and charges merchants is a two-sided platform, and the product must be designed for both sides. An embedded finance provider that offers payments inside another company's app earns a share of the transaction fee, and the product must be designed to be invisible to the end customer while being fully controlled by the sponsor bank. The business analyst must understand which side pays, because that side is the customer whose requirements matter most. A worked example shows the unit economics for one cross-border payment of USD 1,000. The revenue is a fee of USD 5 plus a foreign exchange spread of 1 percent, which is USD 10, so USD 15 in total. The costs are a correspondent charge of USD 4, a screening cost of USD 0.50, an operations cost of USD 2, and an expected exception cost of USD 1.50, a total of USD 8, so the payment earns USD 7. If the exception rate rises and the expected exception cost reaches USD 9, the total cost is USD 15.50 and the payment loses USD 0.50, so the product loses money on every payment and no volume will fix it. For a business analyst, the business model is a set of numbers that must balance. The unit economics of a single payment must be calculated: the revenue from the fee and the spread, minus the scheme fee, the interchange, the correspondent charge, the screening cost, the operations cost, and the expected exception cost. If the unit economics are negative, the product loses money on every payment, and no volume will fix it. The acceptance criteria must include a worked unit economics calculation for the product's main payment type. Last reviewed 7 November 2026. Further reading: Regulation (EU) 2015/751 on interchange fees; the Payment Systems Regulator market reviews; McKinsey Global Payments Report 2024; FIS Global Payments Report 2024.