Cut Losses on Low-Value Payments with Intelligent Pricing

In today's digital economy, platform businesses thrive on the ability to seamlessly connect sellers and buyers, facilitating transactions that drive both revenue and growth. However, for many platforms operating under an IC++ pricing model, payment processing fees can pose a significant challenge to profitability, particularly when dealing with high volumes of low-value payments.

Without intelligent payment pricing tools that can adjust sell rates based on Gross Merchandise Value (GMV), platforms risk negative margins, which means they're not just giving their services away—they're actually paying to do so.

Let’s dive into why this is happening, and how platforms can harness intelligent pricing to protect their bottom line.

Why Low-Value Payments Hurt Platforms

Many platform businesses under the IC++ model are charged a combination of fixed and variable fees by Payment Service Providers (PSPs) and card schemes like Visa and Mastercard. The challenge arises when a significant portion of these fees are fixed or have minimum thresholds, meaning they don’t scale down proportionally with the transaction amount. When a platform experiences a high volume of low-value transactions, these fixed fees can quickly erode margins.

Let’s take a look at some of the specific fees charged on Visa Debit card payments, regardless of the transaction value:

• Network Acquirer Processing Fee – A fee charged by the acquirer to facilitate the debit transaction.
• Digital Commerce Services Fee – A fee for handling online transactions.
• BASE II System Transmission Fee – A flat fee associated with the transmission of transaction data.
• Settlement Report Transmission Charge – A cost for sending settlement reports.
• Clearing and Settlement Interchange Report Fee – A fee tied to processing and settling card transactions.
• US Regulated Debit Fee – A standard fee imposed on debit transactions.

Many of these fees are fixed or have minimums, meaning that whether the transaction is $0.50 or $50, these charges apply. For low-value transactions, this can lead to a situation where the processing costs actually exceed the revenue from the transaction, resulting in negative margins.

A low value payment in Revenew:

A high value payment in Revenew:

The Bottom Line Impact of Static Pricing

Let’s illustrate the problem with real data from a hospitality platform that charged a variable rate fee but didn’t have intelligent pricing mechanisms in place. This platform processed around $10 million in transactions over a given period, but the outcome was far from ideal:

• For payments under $1, the platform faced a -21.64% margin, resulting in a loss of $182.18.
• For payments between $1 and $5, the margin was -4.35%, costing the platform $3,772.
• For payments between $5 and $10, the margin was -1.13%, with a total loss of $8,000.
• Only for payments above $10 did the platform achieve a positive margin of 4.25%, finally turning a profit.

In total, the platform generated around $320,000 in revenue, but this came at a cost: many of the lower-value transactions were losing money. By introducing an additional fixed fee of $0.30 per transaction, on top of their variable fee—comparable to what a provider like Stripe charges—the platform could have increased its revenue to $365,000, a $45,000 increase, or +15%. More importantly, this change made all transactions (except those under $1) profitable.

Intelligent Pricing Is Essential for Platform Profitability

The above case study underscores the need for intelligent pricing solutions, like those offered by Revenew, to help platforms avoid negative margins on low-value transactions. With intelligent pricing, platforms can configure tiered pricing based on GMV, set minimum fees, and adjust rates based on the payment method. Below are some of the ways in which dynamic payment pricing can benefit platform businesses:

Tiered Pricing Based on GMV: Platforms can charge a lower fee for high-value transactions, incentivizing sellers to process larger orders, while charging a slightly higher fee for low-value transactions to cover the fixed costs.

Minimum Fees: By setting a minimum fixed fee, platforms can ensure that even low-value transactions remain profitable. For example, a $0.50 minimum fee on transactions under $1 could eliminate the risk of negative margins.

Payment Method Adjustments: Different payment methods (e.g., credit cards, debit cards, digital wallets) come with varying costs. By adjusting pricing dynamically based on the chosen method, platforms can protect their margins while offering competitive rates for more cost-effective payment types.

Revenew Boost: Pricing Intelligence at Your Fingertips

Intelligent pricing isn’t just about profitability—it’s about creating a flexible pricing strategy that adapts to the inherent variability in payment processing. With Revenew Boost, platforms can leverage technology to dynamically adjust sell rates based on transaction value, payment method, or even geography. This ensures that platforms:

• Minimize exposure to unprofitable transactions.
• Maintain healthy margins, regardless of GMV or payment method.
• Encourage growth, by offering competitive rates on higher-value transactions that might motivate merchants to sell more.

In an industry where margins are tight and transaction volumes are high, having the ability to configure pricing based on real-time factors is essential. Static pricing models simply don’t offer the flexibility needed to keep up with fluctuating payment costs, and without the right tools, platforms could be leaving money on the table—or worse, paying to process transactions.