Modern businesses accept online payments for quicker and more secure transactions. Many businesses still rely on traditional payments. However, the acceptance of cryptocurrency payments is increasing due to lower fees, faster settlements, and global reach. For these reasons, some other businesses choose to accept payment in crypto.
It is common that businesses need a payment gateway to look more authentic and reliable when accepting online payments. However, you have to choose the right platform (traditional or crypto payment gateway) for accepting online payments. It directly impacts costs, profits, and customer satisfaction. Cost is an important deciding factor for many businesses when choosing a payment gateway. So, here, we will be looking at the cost breakdown of both types of payment gateways.
Understanding Traditional Payment Gateway Costs
Traditional payment gateways have credit cards, debit cards, digital wallets, and bank transfers. Apart from the payment processor, there are multiple mediators in the traditional payment process, such as card networks and issuing banks. Every mediator charges a fee, and businesses have to pay them.
Transaction Processing Fees
Transaction fees are the most common cost for businesses that use traditional gateways. Most platforms charge a percentage share of the transaction amount along with a fixed fee.
- Some widely known credit card payment processors charge around 2.9% plus $0.30 per transaction.
- Traditional payment gateways usually charge 2% to 3.5% per transaction plus a fixed fee.
- Some processors charge higher rates, reaching 2% to 7%, based on industry risk and location.
Transaction fees can reduce profit margins. Businesses that handle large-volume transactions face this a lot.
Interchange and Network Fees
Interchange fees are mostly present in traditional card payments for customers’ banks and assessment fees. Card networks use these fees in exchange for services. These fees are included in the overall processing fees, but they increase total transaction costs.
Sometimes, interchange/network fees can reach 1.5% to 2% per transaction for some regions. So, they become one of the biggest expenses for businesses.
Monthly and Setup Charges
Many traditional gateways charge additional service fees.
- Monthly fees usually range between USD 13 and USD 68. The net fee amount relies on features and business size.
- Subscription costs for enterprise-level payment solutions may be higher. However, they may offer advanced fraud protection or reporting tools.
These recurring expenses increase long-term operating costs.
Authorization and Settlement Fees
Businesses also have to pay authorization and settlement fees. Platforms charge this fee when the payment approval is requested. On the other hand, settlement fees are applicable when funds are transferred to business owners’ accounts.
These smaller charges are combined, resulting in higher payment processing costs.
Chargeback and Fraud Costs
Chargeback is a major cost associated with traditional payment gateways. Sometimes, customers can dispute transactions and reverse payments, even after satisfactory purchases.
- Business owners may need to pay USD 15 to USD 100 per chargeback dispute.
- Chargeback fraud costs global businesses billions of dollars annually.
Chargebacks can also lead to high processing fees and account suspension for high-risk businesses.
Understanding Crypto Payment Gateway Costs
Cryptocurrency payment gateways let businesses accept payments in currencies like Bitcoin, Ethereum, and stablecoins. Since crypto transactions are processed on a distributed ledger known as blockchain, mediators and overall costs are reduced in this payment method.
Platform Fees
Crypto payment processors usually charge lower fees compared to fiat processors.
- Most platforms charge around 0.5% to 1.5% processing fees.
- This fee is quite lower than the fee of traditional payment processors.
With lower transaction fees, businesses can earn more profit from each sale.
Blockchain Network (Gas) Fees
This fee is charged to reward miners for validating transactions. This fee also helps the network run smoothly and securely.
- Transactions on high-demand networks like Ethereum can cost between USD 5 and 50.
- On the other hand, transactions on low-cost networks such as Solana or Polygon can cost less than USD 0.01.
Here, businesses have a choice, whether they or their customers will be paying the fee.
Conversion and Exchange Fees
Additional conversion fees apply when converting crypto assets into traditional or fiat assets.
- The average conversion rate ranges from 0.1% to 5%, based on the service provider.
- Some crypto payment processors also provide crypto-to-fiat conversion services by charging 0.5% to 1%.
The final conversion amount depends on whether you hold the fund or exchange it immediately.
Withdrawal and Payout Costs
Fees for transferring funds from merchant dashboards to bank accounts or external wallets are withdrawal fees.
- Fiat withdrawals can cost USD 1 to USD 50, depending on the amount, transfer method, and service provider.
- Crypto withdrawals mostly include only network fees, resulting in a higher settlement amount.
- CoinRemitter charges only a 0.23% processing fee (applicable to withdrawals), which makes it one of the most affordable platforms to accept crypto payments.
Refund and Administrative Fees
Refunds in cryptocurrency payments are quite different from fiat payments. You have to make a new blockchain transaction to process a refund. Some platforms may charge USD 0.25 to USD 1 per refund.
Subscription Fees
Some cryptocurrency payment gateways offer subscriptions for premium services. For example, our platform offers a premium membership for USD 99.99. This fee is completely subjective, and you only have to pay it if you want premium benefits.
A Brief Comparison: Crypto vs Traditional Payment Gateway Costs
Transaction Cost Comparison
Traditional payments cost more than cryptocurrency payments in general. For example, if your monthly revenue is USD 100,000, your fee with a traditional gateway will be around USD 2,000 to USD 7,000, while with a crypto gateway, it will be only around USD 400 to USD 2,000. So, you can have long-term savings for your business.
Mediator Cost Comparison
Traditional payments have mediators like acquiring banks, issuing banks, card networks, and payment processors. Compliance costs increase with each mediator involved.
On the other hand, cryptocurrency payments are decentralized. So, there are fewer mediators, resulting in reduced costs.
Chargeback Risks
Customers can dispute transactions in traditional payments. So, there could be a financial risk for businesses.
Crypto payments are completely irreversible. So, customers cannot make a chargeback claim. Refunds with crypto payments are handled via manual transactions. So, the financial risk is reduced with this payment method.
Settlement Speed and Cash Flow
Traditional payments may take a few days to settle, delaying revenue generation. Crypto payments settle within minutes, improving cash flow and reducing the need for working capital.
Cross-Border Payment Costs
International payments with traditional currencies often involve currency conversion fees and intermediary bank charges. Crypto payments are free from such fees because transactions occur directly between parties.
Hidden Costs to Be Considered By Businesses
- Price Volatility Risk: Cryptocurrencies face frequent price fluctuations. So, businesses that accept payment in crypto may face exchange rate risks and suffer losses as prices decline.
- Regulatory and Compliance Cost: The traditional payment industry is highly regulated, while cryptocurrency payments require additional compliance checks according to regional laws and business sectors.
- Integration and Technical Setup: Crypto payment integration is more complex compared to traditional payment integration. It requires additional development resources unless you use solutions like crypto payment widgets.
Conclusion
Both traditional and cryptocurrency payments are important for modern online businesses. Both have their pros and cons. But when it comes to costs, cryptocurrency payments have an edge. Here, transaction costs, network fees, chargeback risks, mediator costs, and cross-border payment costs are lower. Settlements are faster, resulting in an improved cash flow. However, there are certain challenges like volatility, regulatory compliance, and technical setup costs. But still, cryptocurrency payments are overall more cost-effective compared to traditional payments.