Payment Processing: Procurement & Fee Optimization

How the market works

Every card payment passes through several parties. The card-issuing bank pays the cardholder’s side, the card networks set the rules and move the transaction, and the merchant’s acquirer settles funds to the merchant. Processors handle authorization, clearing and settlement on the acquirer’s behalf, and gateways connect the merchant’s point of sale, website or application to the processor. In practice, many providers combine these roles, and payment facilitators and platforms bundle them into a single service for smaller merchants.

The cost of acceptance has three layers. Interchange is paid to the issuer and varies by card type, transaction type and how the payment was taken. Scheme or network fees are charged by the card networks for assessments and specific transaction events. The processor’s markup covers its service and margin, charged as a percentage, a per-item fee, or both, plus monthly, gateway, chargeback, statement, PCI and other ancillary fees.

Pricing models differ in transparency. Interchange-plus passes through the first two layers at cost and discloses the markup. Tiered and blended models bundle them into a few rates, and flat-rate pricing combines everything into one. Agreements often include multi-year terms, auto-renewal, early termination fees, volume commitments and rights for the processor to change fees on notice.

Payment method mix matters as well. ACH and other bank transfers, digital wallets, real-time payments and buy-now-pay-later options each carry their own cost structure and acceptance terms. Steering customers toward lower-cost methods, where the business and card network rules allow it, can be as valuable as negotiating the card rate itself.

Where cost and value leak

Markup hidden in bundled pricing. Under tiered or blended pricing, falling interchange or changes in card mix can widen the processor’s margin without any visible price change.

Transactions downgraded to higher rates. Missing data fields, late settlement, or authorization and capture practices cause transactions to qualify at more expensive interchange categories.

Fee creep. New or increased ancillary fees appear through notices that no one reviews, and pass-through items are marked up.

Fragmented relationships. Different business units or locations use different processors and gateways on different terms, with no consolidated negotiation.

Chargebacks and PCI penalties. Dispute fees, non-compliance charges and avoidable chargebacks add cost that sits outside the headline rate.

Settlement and reconciliation gaps. Funding delays, reserves and net settlement that deducts fees before deposit make it hard for finance to reconcile what was charged against what was agreed.

Illustration: a multi-location service business signed a tiered pricing agreement years ago. Since then, card mix has shifted toward rewards and business cards, and an online booking channel was added through a separate gateway. A statement review finds a large share of transactions falling into the most expensive tier, a PCI non-compliance fee on several merchant accounts whose annual questionnaires lapsed, and a network fee billed above the network’s published rate. None of these appeared as a rate increase, so no one questioned them.

Negotiation and sourcing levers

• Move to interchange-plus — separate pass-through costs from markup so the processor’s earnings are visible and negotiable.
• Markup and fee negotiation — reduce percentage and per-item markup and remove or cap ancillary fees.
• Interchange qualification — improve transaction data, settlement timing and authorization practices so transactions qualify at the correct rates.
• Consolidation — bring merchant accounts, locations and channels under fewer, better-negotiated agreements.
• Competitive market test — run a structured RFP across processors, acquirers and gateways to establish a credible alternative.
• Contract protections — limit unilateral fee changes, pass-through markups, early termination fees and auto-renewal terms.
• Chargeback and PCI management — reduce avoidable disputes and non-compliance fees, and evaluate scope-reducing options with your security team.

The S2V approach

Potential. Using the S2V Compass, we analyze statements, contracts and transaction data to separate pass-through cost from markup and identify downgrades, fee creep and non-compliance charges.

Priority. We rank opportunities by value, implementation effort and risk to customer experience, and use the S2V Blueprint to decide between renegotiation, consolidation and a full market test.

Performance. The S2V Accelerator runs the negotiation or sourcing event and works with finance, IT and operations on pricing, contract terms and any required technical changes.

Value. S2V Pulse reviews statements after signing to confirm new pricing is billed as agreed, pass-through stays at cost and new fees are caught early.

Data you’ll need

The core inputs are processor statements for each merchant account, ideally in detailed electronic format, processor and gateway agreements with fee schedules, transaction-level data where available, chargeback reports and PCI compliance status by account. Matching breaks on merchant IDs that don’t map to locations or legal entities, statements that summarize fees without transaction detail, gateway charges billed separately from processing, and fee descriptions that change from one statement to the next.

We first confirm whether statements, contracts and merchant accounts can be joined reliably through canonical merchant, location and entity keys. If they can’t, we say so and scope the foundation work separately, so fee analysis rests on data that reconciles.

Outcomes we target

• Visible, negotiated markup — pricing structured so processor earnings are clear and competitive.
• Correct interchange qualification — fewer downgrades through better transaction data and practices.
• Controlled ancillary fees — unnecessary charges removed and future fee changes limited by contract.
• Consolidated relationships — fewer processors and gateways, on terms negotiated as a whole.
• Lower dispute and compliance cost — reduced chargebacks and no avoidable PCI penalties.
• Statement-level verification — every pricing change confirmed on actual statements.

Every result is tracked to realized value — measured in invoices and operating performance, not negotiated estimates.

Industries where this matters

• Financial Services
• Private Equity
• Retail

How we help

• Assess — Assess establishes where your organization stands and where value is trapped.
• Advise — Advise determines where procurement should go and what deserves resources first.
• Execute — Execute turns strategy into implemented results.
• Develop — Develop builds your team's capability so results last after the engagement ends.
• Sustain — Sustain protects and extends value after implementation.

Frequently asked questions