How Payments Companies Actually Price

FX & Float Memo #1

Most payment companies have a pricing page listing their charges. The price listed there has almost nothing to do with the price you actually pay. And the price you actually pay has almost nothing to do with what it costs them to move your money.

This is the paradox of pricing payments. These numbers are all different. Understanding the gap between them is the most important thing to learn about how the payments industry works.

What People Believe

The common mental model for pricing tells us that the payment company charges a fee to send money, and that fee covers their costs plus a margin. If companies offer low prices, they must be more efficient. The expensive companies must be taking advantage of you. Simple.

This is wrong in almost every respect. Looking at payment pricing as a fee is incorrect. It is a combination of interlocking components, each controlled by a different actor, each with its own logic, and most of them invisible to the customer.

The five components of Payment Pricing

Component 1: The Stated Fee

This is the number mentioned on the website. “Send money for $15,” or “1% flat fee.” This is the price the customer ‘thinks’ they are paying.

The stated fee exists for one reason: to give the customer something to compare. When a customer compares three providers, they compare the stated fees. It’s easy to compare 1%, 1.5%, and 3%. While customers think they are rationally comparing costs, they are comparing the wrong numbers.

The stated fee is at best a marketing instrument, with very little to do with the payment company’s revenue model.

Component 2: The FX markup

Let’s say you send $1,000 from the US to India. This payment has to be converted from USD to INR. There is a ‘mid-market rate’- the rate at which currencies trade on wholesale markets. And then there is the rate the payment company gives you.

The gap between these two rates is the FX markup. This markup is never disclosed as a separate line item. This is where the payment company makes real money.

In a real-world example, on a given day, the mid-market rate for USD-INR might be 93. A bank might offer you 91.15, which is a 2% markup. On a $1,000 transfer, you lose $20 - without charging any fee. A company like Wise might offer you 92.75, or a 0.25% markup. That is $2.50.

The difference between these two is $17.5, while the stated fee difference may be as little as $3 on this transaction.

This is why comparing the stated fees is wrong. The FX markup can be 2 to 10 times bigger than the stated fee, depending on the provider and the corridor. For a payments company, FX markup is a primary source of revenue. And yet, this is the component that most customers never check.

Component 3: The float

When you initiate a cross-border payment, the funds are debited from your account almost immediately. But they do not arrive in the recipient’s account for 1 to 3 days, and sometimes even longer. During this time, the payments company (or one of the intermediaries in the chain) holds your money.

The sitting money earns interest. And across a portfolio of millions of transactions, the interest is significant.

This is the float. It is not disclosed to customers. But it contributes meaningfully to the company’s revenue, especially in a high-interest-rate environment.

The float also creates a perverse incentive for payment companies. Faster payments mean less float revenue. When a company says it is investing in speed, it also means it will cut a line item from its revenue to improve the customer experience. While some do this, many don’t, succumbing to revenue pressure.

Component 4: The corridor cost

Money movement across different corridors costs the payment company differently. $1,000 from the US to the UK costs far less than sending $1,000 from the US to Vietnam. Costs depend on infrastructure, banking partner fees, compliance requirements, and FX liquidity, and these differ dramatically by corridor.

In a high-volume and well-regulated corridor like USD-GBP, the cost to the payments company could range from $2 to $4 per transaction. Pre-funded local accounts in the UK, deep GBP liquidity, standardised compliance, multiple banking partners competing for volume. This is a cheap corridor to operate.

In a low-volume, complex corridor like USD-VND, the cost might be $8 to $12. Limited banking partners to handle Vietnam-bound flows, limited FX liquidity that widens the spread and complex compliance requirements for the receiving country. This is an expensive corridor.

And yet, customers in both corridors might see a similar stated fee. The difference between the real cost to the payment company and the stated fees gets absorbed into the FX markup. Simply said, the corridor with the higher transfer cost gets a wider spread. Thus, the customers sending money to Vietnam are bearing a margin they cannot even see.

Component 5: The interchange and network fees (for card payments)

If the payment is made with a credit or debit card, there are additional interchange and network fees.

Every card transaction involves a fee paid by the merchant’s bank (the acquirer) to the customer’s bank (the issuer). This is an interchange set by the card networks. It is not negotiable at the individual transaction level. It ranges from 0.5% to 3.5%, depending on factors such as card type, merchant category, geography, and whether the card is present or not.

In addition to interchange, the card network charges a fee for using its rails. And then the acquirer adds its own margin on top.

So when a merchant sees “2.9% + $0.30” from their payment processor, the breakdown might be 1.8% interchange to the cardholder’s bank, 0.15% to the network and the remaining 0.95% split between the acquirer and the processor. The processor’s actual margin on that transaction might be as low as 0.3%.

This is why payment processors do not like to compete on price. The majority of the fee they charge is not theirs to cut. The only lever they control is their margin, which is already the smallest component.

What it means

Payment pricing is how five components, each controlled by different actors with distinct incentives, stack on top of one another.

This has three consequences:

First, price comparison in payments is fundamentally broken. Customers compare the one component they can see (the stated fee) and ignore the ones they cannot.

Second, payment companies that lead with transparency create a competitive advantage. When the entire structure is meant to obfuscate, customers are delighted by transparency. Wise has built a multi-billion-dollar business in large part by making the 2^nd Component (the FX markup) visible. This single design decision has primed the customers to expect transparency and forced competitors to respond. The next company to do this for another component (e.g., float or corridor cost) will likely have a similar advantage.

Third, if you are running a payments company and do not fully understand all five components of your own pricing architecture - how each component contributes to revenue, how customers perceive each component, and where the gaps between cost and price are widest - you are making pricing decisions on incomplete information. Your competitors who understand this will eventually take your customers.