Where Do Stripe Fees Actually Go?

And Why the Answer Applies to Square, PayPal, and Every Flat-Rate Processor

No, the founders of Stripe aren't just pocketing your 2.9%. The full picture of where processing fees go is more complicated — and more important for your business — than most people realize. Here's the plain-English breakdown every business owner should understand.

By Allen Kopelman, CEO · Nationwide Payment Systems

The Reality of Flat-Rate Processing

A Reddit user recently asked a question I've been answering for 25 years: where do Stripe's fees actually go? They assumed — reasonably, if incorrectly — that when Stripe charges 2.9% plus 30 cents on every transaction, Stripe's founders were simply collecting that money as profit.

The real answer is significantly more interesting. And understanding it has real money implications for your business — especially if you're processing more than $50,000 a month and still paying flat-rate fees on every debit card your customers swipe.

Let's break it down from the beginning.

Payment Processing Has Five Mouths to Feed

Every transaction fee is divided among multiple parties before anyone calls it profit.

When a customer pays you with a credit or debit card, the fee you pay as a merchant doesn't go to one place. It flows through an entire ecosystem — card networks, banks, processors, gateways — with each party taking a piece. Here's how it breaks down:

1. Interchange — Goes to the Issuing Bank

Portion: Largest portion

This is the largest single component of any processing fee. Interchange is set by Visa, Mastercard, Discover, or Amex — and it flows directly to the bank that issued your customer's card.

"When your customer pays with their Chase Visa or their Bank of America Mastercard, Chase or Bank of America receives the interchange. It's their compensation for extending credit, managing cardholder risk, and running rewards programs."

2. Card Brand Assessments — Go to Visa, Mastercard, Discover, Amex

Portion: ~0.13% to 0.15%

Separate from interchange, the card networks themselves charge assessment fees — a small percentage of each transaction — for the right to use their rails. These are non-negotiable fees that every processor pays to every card brand on every transaction. They're small individually but add up at volume.

3. Authorization Fees — Processing Infrastructure Cost

Portion: Per transaction

Every time a card is swiped, tapped, or entered online, an authorization request travels through the payment network to verify the card and approve the transaction. This process uses infrastructure that costs money — network fees, per-transaction costs, and the computing resources that run the authorization system.

4. Settlement Fees — Moving Money to Your Bank Account

Portion: Acquiring bank cost

After a transaction is authorized and captured, it needs to be settled — which means the actual funds move through the banking system and arrive in your merchant account and then your bank. Settlement involves the acquiring bank (the bank that holds the merchant account), and that bank charges for its role in the process.

5. Processor Profit — What Stripe (or Anyone Else) Actually Keeps

Portion: What remains

After interchange, assessments, authorization costs, and settlement costs are all paid, what remains is the processor's actual profit margin.

"On a typical credit card transaction, after paying all the parties above, a processor's margin is real but modest — far less than the full 2.9% a business sees on their statement. Except in one very specific case."

The Flat-Rate "Hidden Margin": The Debit Card Factor

Where Flat-Rate Processors Make Their Real Money

Earlier, I mentioned there is "one very specific case" where the processor’s profit margin expands significantly. That case is the debit card.

In 2011, a piece of legislation called the Durbin Amendment capped the interchange fees that large banks can charge on debit card transactions. While a high-rewards credit card might have an interchange cost of 1.80% or 2.10%, a regulated debit card costs the processor roughly 0.05% + 22 cents.

The Math of the Margin

If you are on a flat rate of 2.9% + 30¢, look at the difference in what the processor keeps:

On a $100 Rewards Credit Card Transaction:

• Interchange + Assessments: ~$1.95

• Stripe/Square Fee: $3.20

• Processor Keeps: $1.25

On a $100 Regulated Debit Card Transaction:

• Interchange + Assessments: ~$0.27

• Stripe/Square Fee: $3.20

• Processor Keeps: $2.93

On that debit transaction, the processor’s profit margin more than doubles. Because you are paying a flat rate, the savings created by federal law don't go to your business—they stay with the processor.

Why This Matters to Your Bottom Line

The "Stability vs. Savings" Trade-off

Flat-rate providers like Stripe, Square, and PayPal offer something valuable: simplicity. You know exactly what you’ll pay, and you can get an account in five minutes. For a new business doing $2,000 a month, that simplicity is worth the cost.

But as you scale—specifically when you cross $20,000 to $50,000 per month—that simplicity becomes an expensive tax.

The Solution: Interchange Plus (Cost Plus)

This is the pricing model used by NPS One. Instead of a flat "blended" rate, we charge you the actual cost of the transaction (Interchange + Assessments) plus a small, transparent markup.

• When a customer uses a debit card, you get the Durbin Amendment savings.

• When a customer uses a basic credit card, you pay the lower rate.

• You only pay the higher rates when a customer uses an expensive premium rewards card.

The Bottom Line

Stripe and Square are incredible pieces of software, but they are also "Aggregators." They take the risk of thousands of unknown merchants by charging a premium price.

If you have an established business with a history of clean processing, you shouldn't be paying the "risk premium" associated with flat-rate pricing. You deserve to see exactly where every penny of your fee goes.

"If your processor can't explain where your fees go, that's not an accident. Understanding the economics of payment processing is how you stop overpaying for it."

Comparison: Flat-Rate vs. Interchange Plus

The Three Components of Every Transaction

To move from a "blended" rate to a transparent one, you have to understand that every fee is actually three separate costs bundled together:

1. Interchange Fee: The "wholesale" cost paid to the bank that issued the card. Non-negotiable.

2. Assessment Fee: The "toll" paid to the network (Visa/Mastercard) for using their rails.

3. Processor Markup: The only part of the fee that is actually negotiable. This is what you pay for technology and support.

Take the Next Step

Ready to see the actual "Cost" of your processing? At Nationwide Payment Systems, we provide a side-by-side analysis of your current flat-rate statement against an NPS One Interchange Plus quote.

Visit NationwidePaymentSystems.com to request your analysis.