Understanding (and lowering) payment processing fees

Danika Koenig
Head of Payment Operations
Jun 7, 2024

So you’re researching payment providers for your game’s website. By now, you know the criteria that goes into choosing the best one for you, and the right questions to ask like these 9 we outlined here. But I bet we know your first question - how much is this payment processing fee going to cost me? 

There are massive benefits to selling direct-to-consumer, and lower payment processing fees is definitely one of the most exciting ones. In comparison to the major distribution platforms - namely Apple, Google, and Steam - which take a 30% payment processing fee on each microtransaction your game sells, online payment providers take somewhere between 5-15%. That’s a huge margin difference, and up to 28% more revenue in your pocket. 

In the spirit of transparency, we wanted to thoroughly break down the economics of payment processing fees - so you know exactly where your money is going and what you should (and shouldn’t) be paying for. You’ll get a side by side comparison with Apple and Google, definitions for all the fees and deductions, and 5 tips on reducing fees and keeping more revenue in your pocket. 

Payment processing fees: Apple/Google vs web shops

As we know, Apple and Google both deduct a 30% commission as well as taxes from your gross revenue - so the net payout equation looks like this: 
Gross revenue - 30% commission - taxes = payout

Meanwhile, online providers deduct about a 5% commission and a few smaller fees - so their equation looks more like this: 
Gross revenue - channel fees - FX fees - taxes = net revenue
Net revenue - 5% commission = payout

Let’s run through an example. Say your players spent $10K on your web shop and $10K in your game last month (way to go!). This is what your financial report would look like for each: 

Web shop App stores Total
Line item Terms $ amount $ amount Web shop App stores
Gross player spend $10,000 $10,000
Refund amount The amount of spend returned to players by customer service as part of a refund -$100 -$100 $9,900 $9,900
Chargeback amount Spend returned to players who contest purchases by disputing transactions with payment methods -$50 -$50 $9,850 $9,850
Revenue collected on your behalf ($) $9,850 $9,850
Taxes -3% -$300 -$300 $9,550 $9,700
Channel fee -2.9% + $0.30*transaction (charged on player spend) -$320 -$3,000 $9,230 $6,700
Chargeback fee -$10-$20 per chargeback -$45 $9,185
Foreign transaction fee -1.5% (charged on foreign transactions only) -$150 $9,035
Provider fee -5% (charged on net revenue: gross revenue - taxes, channel fees, foreign transaction fees) -$461.50 $8,574
Net payout $8,573.50 $6,700

As you see, you save considerably more revenue running payments on the web - about 28% more in this case. 

Payment processing fee definitions

Now what do each of these deductions entail? Let’s break it down. 

Gross player spend

This is the total amount of money players spent in your web shop during a set period of time. Basically, this is what you’ve earned before any deductions. 

Deduction 1: Chargeback and refund amount

Your first deduction - the chargeback and refund amount, or the total amount of money you need to give back to players.

While both chargebacks and refunds involve returning funds to players, there’s a big distinction between them, each with significant implications for your business. Players might request a refund because a friend or family member accidentally made a purchase on their account, they never received the item, or the item wasn’t what they expected.

Sometimes, players escalate refunds into chargebacks - which is when players dispute charges with their bank or credit card company, instead of you. Either, players dispute charges because the item they received wasn’t what they expected, or they claim their credentials were stolen and insist they didn’t make the payment themselves, someone else did. Like refunds, you’ll also have to pay players back for the total amount of chargebacks. (Learn why you want to minimize your chargebacks).

Deduction 2: Taxes

To stay compliant with local and international regulators, you need to pay a sales tax on digital goods - and how much you pay depends on the country. 

In the US, you have additive sales tax, which is a percentage on top of the IAP’s price. It varies by state, with some states (like Arkansas and California) that exempt sales taxes on digital games, others that charge a low 2.9% tax (like Colorado), and others that charge a high 6.25% tax (like Illinois). 

Meanwhile, in Europe, you have VAT, which is included in the IAP’s price. The European Union’s average standard VAT rate is 21.6%, but varies per country. 

Both web shops and the app stores pass on taxes to you, the developer. 

Deduction 3: Channel fee

The channel fee is the cost of using the payment method (think credit cards, Apple Pay, bank transfers). They’re either charged as a percentage of the transaction value (like 2.9%) or a per-transaction fee (like $0.30), or both. 

The app stores roll the payment fee into their provider fee, while online providers pass it onto you as a separate cost. 

Generally, channel fees are made up of many smaller charges, which get paid out to different parties in the payments funnel - like gateway fees, assessment fees, processor fees, and cross-border fees. 

For example, the major credit card networks charge a total of 2-4%, while carrier billing ranges from 10-15% (not including monthly minimums).

Payment method Average channel fee
Credit cards 2-4%
Carrier billing 10-15% fees + monthly minimums
7-Eleven 4%
Cash App Pay 2.9% + $0.30
WeChat Pay 3%
Wallets 2.9% + $0.30

Deduction 4: Foreign exchange (FX) fees

On foreign currency spend, you’ll need to watch out for two things: 

  • FX rate: the currency exchange rate
  • FX conversion fees: an additional fee that developers pay on the value of converted currency, typically ~1-3%

If you’re a US based company, but a user in the UK is making a purchase on your web shop, they’ll pay in British pounds, not US dollars. But since you need to receive the payment in US dollars, the relevant financial institution (credit card network, bank, etc.) needs to exchange those pounds for dollars. Today, the mid-market exchange rate (a “real” or “fair” exchange rate) from GBP to USD is £1.00 to $1.27 - meaning the amount you settle before additional deductions is $127.05. After a 1.5% FX fee of $1.91, you would receive $125.14.  

The app stores include any associated conversion fees as part of their larger provider fee. Meanwhile, online providers pass this charge onto you - though as you see, it’s generally minimal. 

It’s important to be aware that some providers hide costs in their FX rates. Though it is hard to monitor what rate they're using and whether it's the “best” rate for you, be sure to ask your payment partner how they choose FX rates and whether they make money from foreign exchange arbitrage.  

Deduction 5: Chargeback fees

In addition to paying out the chargeback amount, you also have to pay chargeback fees - which can range between $10-$20 for each one. The best way to avoid chargeback fees is to have a strong customer support operation and a generous refund policy - so you refund players before they escalate to chargebacks.

Deduction 6: Provider fee

The payment provider you work with also takes a fee - this is for services like tax management, compliance management, customer support, and more. The app stores take 30% on gross revenue. 

Meanwhile, Stash, for example, takes a 5% fee on your net revenue. (It’s important to note that not all providers take a fee on net revenue, some might take it on gross - but a provider that takes it net is more incentivized to lower your other fees).

If you choose to build an in-house payments solution, you wouldn’t have to pay this fee. However, you’d need to factor in the high cost of hiring and managing engineering, compliance lawyers, and more. 

Net payout 

This is the amount you see in your bank account after all the deductions. From $10,000, you took home $8,573.50 compared to $6,700 you would have taken home on traditional in-app channels. That’s 28% more revenue.

How to reduce payment processing fees

Unlike the app stores where you can’t control what the 30% cut looks like, a transparent payment provider can do a lot to make sure the above deductions are as low as possible for you - so you reduce unnecessary fees and avoid hidden costs.

1. Avoid expensive, niche payment methods

First, limit payment methods to what’s absolutely necessary. Remember that players going to your web shop or spending online are generally your highest spenders - they’re the ones with the motivation to hunt down a discount online and sacrifice the convenience of double tapping in-app. That means you only want to offer local payment methods where these players are. Typically, these spenders come from 15-20 countries with high disposable income and fast internet connectivity, like the US, Canada, Germany, Japan, Korea, and Australia. 

If you don’t have significant transaction volume on niche payment methods, the potential revenue you earn could be less than what you pay to process the transaction. For example, do you have many high spenders in Indonesia? If not, don’t offer GoPay, which takes 4.5% of each transaction. 

Meanwhile the channel fees for credit cards will almost always be the lowest, and they also give you the widest reach. 70% of gamers use traditional payment methods like credit cards - so you’re typically safe in sticking to the core payment method. 

2. Manage your refunds and chargebacks 

You can save a big chunk of potential revenue by minimizing chargebacks and refunds. Not only would you be paying customers back less often, you'd also be avoiding the chargeback fees associated with them.

To do that, be sure to have a generous refund policy, as a way to prevent users from escalating to chargebacks. If you see specific users requesting too many refunds or chargebacks, you can also consider blocking them from making future purchases.

3. Ask your provider about its direct contracts 

Sometimes, payment providers strike direct deals with payment methods that are lower than their average cost. So instead of a 4% payment method fee, it might be closer to 3% with a specific provider. As you grow larger and more important to financial institutions, you might even be able to arrange your own deals with the networks.

4. Ask your provider about its foreign exchange rates

It’s extremely important to analyze, understand, and ask about the foreign exchange rates your payment provider is using. It doesn’t always happen, but your provider can hide fees and costs by charging you a higher foreign exchange rate than the market rate, and then pocketing the difference.

So, make sure they’re transparent with you on their rate and then compare it to the market rate (which you can find through a quick Google search or with this calculator).

5. Pursue partnerships with financial institutions

You have a large, captive audience that brands and financial institutions are interested in getting in front of - so think creatively about how you can extend financial services to your players. Finding the right partnership can help offset the costs and add an entirely new revenue stream. For example, you could: 

  • create player wallets, so they load up $20 and you don’t have to pay microtransaction fees
  • partner with a credit card network to create a prepaid card for players
  • offer gift cards so you benefit from stored value
  • strike brand deals to sponsor skins that offset revenue loss

Low fees you can see with Stash

At Stash, we make sure the payment processing fees you pay are as low and transparent as possible. You’ll know why, when, where you’re being charged - down to the tiniest detail. Plus, we’ll work with you to make sure you’re not overpaying, so you get to keep as much margin as you can. Reach out to us to learn more about processing online gaming payments with Stash.

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