Why Did My Costs Change?
It’s the question every payments team asks eventually. Effective cost rates shift month over month, and the reasons aren’t always obvious. Is something wrong? Are you getting the cheapest rates? What is the cheapest rate to begin with?
Vivek Yadav from Stripe and David Beck from Instacart tackled this at the 2025 PaymentsEd Annual Forum. Their approach was refreshingly analytical: instead of listing optimization tips, they showed how to understand cost variability at a structural level, find segments where costs are stable, and use that understanding to make better pricing and processing decisions.
The 60-Variable Problem
A single card transaction’s network costs are determined by over 60 input variables. Card type, merchant country, card brand, funding type, MCC, transaction size, transaction type, card-present versus online, cardholder country, Level 2 and Level 3 data, processing condition codes, ZIP code inclusion, regulated transaction indicators, annual cardholder spend, tipping behavior, and dozens more.
That complexity is why overall effective cost rates fluctuate. A small shift in your transaction mix (more cross-border volume, a different card type distribution, a change in average transaction size) can move your blended rate even when nothing about your processing setup has changed.
Interchange Is the Biggest Piece
In the U.S., interchange accounts for roughly 85% of total network costs. In Australia, it drops to about 65%, with scheme fees taking a larger share. International transactions tend to have a higher proportion of scheme fees compared to domestic.
For a sample $100 U.S. transaction on a tokenized Visa product, the breakdown looks roughly like this: the merchant pays $2.90 plus $0.30 to the acquirer, the acquirer passes along approximately $2.05 in interchange to the issuing bank, and Visa collects about $0.16 in scheme fees (authorization fee of $0.0195 plus an assessment fee of 0.14%). The merchant’s net cost after the acquirer’s margin is the interchange plus scheme fees.
Geography Is the Biggest Cost Driver
Across all the variables, geography has the largest impact on effective cost rates. U.S. rates run about 30 basis points higher than Canada. U.K. rates are roughly 130 basis points lower than the U.S. (thanks to interchange regulation). Singapore and U.S. costs are comparable.
Cross-border transactions add an additional 85 basis points on average, with most of that coming from additional scheme fees rather than interchange. The premium isn’t uniform: Australian cross-border transactions cost about 280 basis points more than domestic. And low-average-order-value cross-border transactions are hit especially hard because many cross-border fees are fixed per transaction rather than percentage-based.
Other Factors
Beyond geography and card brand, the list of factors that move costs is long: card funding type (credit versus debit versus prepaid), MCC classification, whether the transaction is card-present or online, whether network tokens are used, whether Level 2/Level 3 data is included, and whether open authorizations are closed promptly.
Finding Stability in Your Data
Vivek’s key insight was that while overall costs fluctuate, costs for similar transactions should be stable. The definition of “similar” is the challenge: two transactions need to share the same values across all 60-plus factors to be truly comparable.
The practical approach Stripe uses: start with a smaller set of variables (maybe five) and check whether cost rates within that segment are stable. If the ratio between the cheapest 1% and costliest 1% of transactions in a segment (what Vivek called “one_by_99”) is close to 1, you’ve found a stable segment. If not, add more variables until you do.
This matters for two reasons. First, monitoring stable segments lets you detect real cost changes versus mix shifts. Second, understanding your cost structure at a granular level helps you set your own product pricing more accurately.
What You Can Actually Control
The session closed with a practical list of cost levers merchants can pull: process locally to avoid cross-border fees, settle in presentment currency to avoid FX costs, increase transaction size where possible, use network tokens, use card-present where applicable, include ZIP code and Level 2/Level 3 data, and close open authorizations promptly.
David Beck from Instacart reinforced these points from the merchant side, emphasizing that the goal isn’t to eliminate cost variability but to understand it well enough to make informed decisions about processing strategy and product pricing.
This session was presented by Vivek Yadav, Costs Experience EM at Stripe and David Beck, Payments Partnerships Lead at Instacart at the 2025 PaymentsEd Annual Forum.
If understanding and controlling your network costs is a priority, the 2026 PaymentsEd Forum is where payments teams compare notes on what’s actually moving the needle. Save the date for the 2027 Forum.