Understanding Payment Fees: From Cost Centre to Revenue Stream (Part 2)

Platforms typically leave revenue potential untapped by sticking to basic commission models. Simple revenue sharing or static fees limit growth.

In this second part of our series, we’ll explore how platforms can monetize payments by moving from a simple commission model to fully embedded payments with dynamic fee structures. We’ll break down the economics behind it, explain the buy/sell rate model, and show you how Rootline helps platforms turn payments into a core driver of revenue and retention.

Platforms often underutilize payment fees, also known as platform fees, commissions, or markups, as a revenue stream. If you understand how fees flow through the system, where costs come from, and how to structure pricing, you can:

• Control margins at a transaction level.

• Increase revenue per user (RPU) without increasing churn.

• Offer differentiated pricing per segment, merchant, or use case.

• Build sticky financial services on top of your core product.

Choosing Your Payments Model: Revenue Share or Fully Embedded

Most platforms initially choose a revenue share model, where sellers on the platform contract directly with a payment provider. You receive only a small commission and rely entirely on the payment provider’s pricing.

The advantage is easy setup, but you lose out on:

• Control over the experience

• Setting your own pricing

• Differentiating by merchant or segment, or individual transactions

• Owning the customer relationship

With fully embedded payments you get a direct buy rate from your payment provider. You can get better rates because you can use your total platform volume for pricing negotiations. On top of this you control the entire merchant experience: from onboarding to transaction pricing. This means your merchants receive tailored rates based on their business type or volume, transparent breakdowns of fees, and a streamlined onboarding and checkout experience, leading directly to increased satisfaction, loyalty, and ultimately lower churn.

From Buy Rate to Sell Rate: How to Grow Margins

Let’s look at a practical example to see how embedded payments generate revenue. Imagine your platform processes €5 million per month, with most transactions coming from European consumer debit cards. You’ve negotiated IC++ passthrough pricing from your payment provider. See our previous blog for an explanation of this structure. 

Your buy rate might look like this:

• Interchange: 0.20% (regulated)

• Scheme Fees: €0.05 + 0.05% per transaction

• Processor Markup: 0.40%

If your average transaction size is €100, your buy rate is 0.70%.

If you have a revenue sharing model with your PSP, you might get a 20% kickback. This means 0.40% * 20% = 0.08%. At €5 million per month, that’s about €4,000 per month in gross margin.

If you charge your submerchants a sell rate of 1.00%, your gross margin becomes 1.00% - ~0.70% = ~0.30%. This means a margin of €15,000. This represents nearly a 4x increase.

With Rootline, you can optimize this even more:

• Offer lower fees to high-volume merchants

• Apply higher markups to cross-border or premium card payments

• Tailor pricing by vertical, region, or currency

With dynamic controls and transparent reporting, you don’t just sell payments, you build a margin engine around them.

Challenges Platforms Face in Optimizing Payment Fees

Platforms face challenges monetizing payments such as:

• Lack of transparency: Without IC++ passthrough and granular settlement reports, it’s hard to know your real cost per transaction.

• No dynamic pricing tools: It is very difficult to charge different rates for different merchants or payment methods, especially on multi-level splits (see our blog on funds routing).

• Headaches for your merchants: Without clear reporting and attribution, merchants can’t reconcile their own fees, creating friction and support overhead.

Optimize Your Payments Strategy with Rootline

Truly embedding payments means giving you the control that comes with running your own payments platform.

1. Dynamic Platform Fee Management: Rootline lets you define who is charged, how much, and when. You can charge any interaction with your platform, from authentication to payout. Flexible pricing means you can build a fee model that grows your business.

2. Real-Time Fee Updates: Update fees anytime, in real-time. You might want to remit a fee, or adjust it based on the card type a shopper uses. You can update fees independently of traditional payment processes, while still associating them directly with transactions.

3. Full Visibility into your Cost Price: With Rootline’s granular settlement reports you can easily understand the cost price of your transactions, even when on interchange++, and dynamically adjust your resell price (see our previous blog).

4. Pass through your cost price: We allow you to offer interchange++ pricing to your merchants. Financially savvy merchants benefit from complete transparency into costs, building trust and confidence in your platform.

Rootline enables dynamic pricing, so you can quickly adapt fees without technical overhead, directly boosting your margins.

Transform Payments into a Growth Engine

Embedding payments transforms your business model beyond technical integration. You unlock significant revenue opportunities and also empower your merchants with better experiences, accelerating growth for you and your merchants..

At Rootline, we partner with platforms to make this transition seamless. From transparent IC++ passthrough to dynamic pricing and platform-wide volume tiering, we help you design a model that grows with you and your merchants.

Ready to transform your payments into a powerful revenue driver? Talk to Rootline today.