Payment Processing Cost Efficiency Framework

How to use this framework: Score each of the 20 questions across 5 areas. For each question, select the answer that most accurately reflects your current state. Your total score will indicate whether your payment processing cost function is Exposed, Developing, Proficient, or Excellent — with a maximum of 40 points.

Payment processing costs can silently erode margins. This framework evaluates your cost visibility, scheme fee management, routing efficiency, and commercial negotiation posture. For many fintechs and payments businesses, processing costs represent 1–3% of transaction value — but without the right controls, that figure can be significantly higher, and the delta goes undetected until a margin analysis surfaces it in a board meeting.

The five areas below cover the full cost management lifecycle: from understanding what you are paying and why, to optimising how transactions are routed and authenticated, to ensuring your contracts reflect your commercial leverage. Each question is designed to surface a specific gap that commonly exists even in operationally mature payments businesses.

Area 1: Cost Visibility

Cost Visibility

Q1. Does your finance team track interchange++ cost components (interchange, scheme fees, acquirer margin) separately, rather than relying solely on a blended processing rate?

2 — Fully in place: All three interchange++ components are tracked monthly in a dedicated cost report, with trends and variance analysis. 1 — Partially in place: Some breakdown is available from PSP reporting, but it is not consistently reconciled or reported to management. 0 — Not in place: The business relies on a blended rate from the PSP and does not analyse the underlying cost components.

Q2. Is your cost per transaction calculated and monitored by payment channel (e.g. card-present, e-commerce, open banking, wallet)?

2 — Fully in place: Cost per transaction is reported by channel monthly, with channel mix changes flagged when they affect blended cost. 1 — Partially in place: Cost per transaction is tracked at an aggregate level, but channel-level granularity is not consistently maintained. 0 — Not in place: Cost per transaction is not tracked; processing costs are reviewed only as a total monthly line item.

Q3. Is there a monthly reconciliation process between PSP invoices, scheme fee statements, and the general ledger?

2 — Fully in place: A documented monthly reconciliation process exists; discrepancies are investigated and resolved before close. 1 — Partially in place: Reconciliation occurs but is manual, irregular, or covers only PSP invoices without scheme fee statement matching. 0 — Not in place: Processing costs are posted to the P&L from invoices only, with no independent reconciliation to scheme statements or transaction data.

Q4. Are FX conversion costs — including scheme FX mark-ups, cross-border fees, and currency conversion spreads — identified and reported separately?

2 — Fully in place: FX costs are tracked as a distinct cost category, allocated by currency pair and channel, and reviewed in the monthly cost report. 1 — Partially in place: Cross-border and FX fees are visible in PSP reports but are not broken out separately in the management accounts. 0 — Not in place: FX costs are commingled with general processing fees; the full cost of cross-border transactions is not known.

Assess whether you are overpaying for payment processing. Score your interchange optimisation, scheme fee management, acquirer terms and currency conversion margin against industry benchmarks.

Area 2: Scheme Fee Management

Scheme Fee Management

Q5. Does your team have a working understanding of the scheme fee line items applicable to your transaction mix (e.g. authorisation fees, cross-border fees, network access fees, digital enablement fees)?

2 — Fully in place: Relevant scheme fee categories are documented, mapped to transaction types, and reviewed each time scheme fee schedules are updated. 1 — Partially in place: The team has a general awareness of scheme fees but has not formally documented which categories apply to the business's transaction mix. 0 — Not in place: Scheme fees are treated as a black box; the team relies entirely on PSP reporting without understanding the underlying fee structure.

Q6. Has the business assessed its PCI DSS compliance tier and the cost implications of its current compliance approach (SAQ vs QSA audit)?

2 — Fully in place: PCI compliance tier is formally assessed, compliance costs are budgeted, and the team has evaluated whether SAQ or QSA audit is appropriate and cost-optimal. 1 — Partially in place: The business is PCI compliant but the compliance approach has not been reviewed for cost-efficiency or alignment with current transaction volumes. 0 — Not in place: PCI compliance is managed operationally but the cost of compliance and the scope of the assessment have not been formally reviewed by finance.

Q7. Has the business adopted network tokenisation (Visa Token Service / Mastercard Digital Enablement Service), and is the impact on scheme fees and authorisation rates tracked?

2 — Fully in place: Network tokenisation is live, token coverage rate is monitored, and the cost and authorisation rate impact is tracked and reported. 1 — Partially in place: Network tokenisation has been partially implemented but coverage is incomplete or the financial impact has not been assessed. 0 — Not in place: Network tokenisation has not been implemented or assessed; the business processes transactions without token benefits.

Q8. Is 3DS (3D Secure) authentication configured to optimise for both fraud prevention and scheme fee efficiency, with authentication rates and frictionless flow rates tracked?

2 — Fully in place: 3DS is deployed with risk-based authentication; frictionless rate, challenge rate, and authentication approval rate are all monitored monthly. 1 — Partially in place: 3DS is in place but is not optimised for frictionless flow; authentication metrics are not consistently tracked by finance. 0 — Not in place: 3DS configuration has not been reviewed for cost efficiency; frictionless and challenge rates are unknown.

Area 3: Routing & Decline Optimisation

Routing & Decline Optimisation

Q9. Does the business use intelligent or smart transaction routing to direct transactions to the lowest-cost or highest-performance acquirer for each transaction type?

2 — Fully in place: Smart routing logic is configured and maintained, with rules based on transaction type, card scheme, geography, and acquirer performance; routing decisions are regularly reviewed. 1 — Partially in place: Some routing logic exists (e.g. failover to a secondary acquirer) but has not been optimised for cost or authorisation rate performance. 0 — Not in place: All transactions are routed to a single acquirer with no routing logic in place.

Q10. Is there a documented soft decline recovery process, including automatic retry logic for insufficient funds and do-not-honour decline codes?

2 — Fully in place: Soft decline reason codes are categorised, automatic retry logic is configured with appropriate timing and frequency rules, and recovery rates are tracked. 1 — Partially in place: Some retry logic is in place but decline codes are not categorised and the recovery rate is not monitored as a KPI. 0 — Not in place: Failed transactions are not retried systematically; soft declines are treated the same as hard declines.

Q11. Is retry logic for failed recurring payments documented and compliant with scheme rules (including Account Updater or MOTO retry limits)?

2 — Fully in place: Retry logic is documented, compliant with Visa and Mastercard retry rules, and Account Updater is used to reduce declines from stale card data. 1 — Partially in place: Retry logic exists but has not been reviewed against current scheme rules; Account Updater usage is inconsistent. 0 — Not in place: Retry logic is undocumented and may not comply with scheme retry rules, creating exposure to scheme fines.

Q12. Is acquirer performance benchmarked at least quarterly, covering authorisation rate, decline rate by reason code, and processing cost?

2 — Fully in place: Acquirer performance is reviewed quarterly with a structured scorecard; underperformance triggers a commercial or technical review. 1 — Partially in place: Acquirer data is reviewed periodically but there is no formal benchmarking process or performance scorecard. 0 — Not in place: Acquirer performance is not regularly reviewed; the relationship is managed reactively rather than by data.

Area 4: Commercial Arrangements

Commercial Arrangements

Q13. Has the PSP or acquiring contract been formally reviewed in the last 12 months, including pricing schedules and minimum volume commitments?

2 — Fully in place: The full contract including pricing schedule, MFN clauses, and volume commitments has been reviewed by finance and/or legal in the last 12 months. 1 — Partially in place: The contract has been referenced but not formally reviewed; the current pricing schedule may not reflect actual transaction volumes. 0 — Not in place: The PSP contract has not been reviewed since signing; the business may be on legacy pricing that does not reflect its current scale.

Q14. Are contractual volume thresholds tracked, and does the business know whether it is on track to achieve or exceed committed volumes in the current contract period?

2 — Fully in place: Volume thresholds are tracked monthly against contract tiers; the business proactively manages volumes to ensure it hits pricing break points. 1 — Partially in place: Volume thresholds are known but are not formally tracked in-period; year-end performance against thresholds may come as a surprise. 0 — Not in place: Volume commitments in the PSP contract are not monitored; the business does not know its current position relative to pricing tiers.

Q15. Are Merchant Category Codes (MCCs) verified as accurate for all entity types and product lines, and has the interchange impact of any MCC misclassification been assessed?

2 — Fully in place: MCCs have been verified against the business's actual product and service types; any reclassification opportunities or risks have been assessed and actioned. 1 — Partially in place: MCCs were set at onboarding and have not been revisited; the interchange impact of the current classification is not known. 0 — Not in place: MCC accuracy has never been reviewed; the business may be on an incorrect classification that is driving higher interchange costs.

Q16. Has the business assessed whether its transaction mix qualifies for lower interchange categories (e.g. corporate, debit, regulated, or level 2/3 data)?

2 — Fully in place: Interchange category optimisation has been formally assessed; level 2/3 data is passed where applicable, and debit/credit mix is actively managed. 1 — Partially in place: Some understanding of interchange categories exists, but a formal optimisation exercise has not been completed. 0 — Not in place: Interchange categories have not been reviewed; the business does not know whether it is passing the data required for lower interchange rates.

Area 5: Fraud & Chargeback Costs

Fraud & Chargeback Costs

Q17. Is the business's fraud rate benchmarked against industry averages for its merchant category and payment channel mix?

2 — Fully in place: Fraud rate is tracked monthly and benchmarked against published industry data; material deviations trigger a review of fraud controls. 1 — Partially in place: Fraud rate is tracked internally but is not regularly benchmarked against external industry data. 0 — Not in place: Fraud rate is not tracked as a formal KPI; the business does not have a clear view of its fraud exposure relative to industry norms.

Q18. Is the chargeback rate maintained below 1% of transaction count (Visa) and 1.5% of transaction count (Mastercard), and is it monitored monthly?

2 — Fully in place: Chargeback rates are tracked monthly by scheme, held well below scheme thresholds, and reported in the monthly payments cost report. 1 — Partially in place: Chargeback rates are monitored but not broken out by scheme; the business may not have visibility of proximity to scheme monitoring thresholds. 0 — Not in place: Chargeback rates are not formally tracked; the business is at risk of entering scheme monitoring programmes without advance warning.

Q19. Is the total cost of fraud tooling compared against fraud loss avoided, and is the return on investment in fraud prevention assessed annually?

2 — Fully in place: Fraud tool cost vs loss-avoided ratio is calculated at least annually; the business can demonstrate clear ROI on its fraud prevention investment. 1 — Partially in place: Fraud tooling costs are known but have not been formally compared against fraud losses prevented in a structured ROI analysis. 0 — Not in place: Fraud tooling is treated as a fixed cost; no ROI analysis has been performed and the business cannot assess whether its fraud spend is proportionate.

Q20. Is there a documented dispute management process, including evidence collection, submission timelines, and a designated owner for chargeback representment?

2 — Fully in place: A dispute management process is documented and owned, with SLAs for evidence collection and submission; representment win rate is tracked. 1 — Partially in place: Chargebacks are handled but the process is informal; evidence collection is ad hoc and the win rate is not tracked. 0 — Not in place: There is no documented dispute management process; chargebacks may be written off without attempting representment.

Your Score

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Payment Processing Cost Efficiency Framework

Area 1: Cost Visibility

Cost Visibility

Area 2: Scheme Fee Management

Scheme Fee Management

Area 3: Routing & Decline Optimisation

Routing & Decline Optimisation

Area 4: Commercial Arrangements

Commercial Arrangements

Area 5: Fraud & Chargeback Costs

Fraud & Chargeback Costs

Cut payment processing costs without cutting corners.

Cut payment processing costs
without cutting corners.