The real cost of payments: Why your “Net Effective Rate” is lying

Quick check: when you say “our cost of payments is X%,” are you quoting one neat net effective rate (NER) from a dashboard… or the whole story?

NER is tidy. Reality isn’t. The real bill arrives in basis-point drips from cross-border and FX add-ons, scheme assessments, L2/L3 misses, retries that never convert, refunds, and chargebacks. None of that shows up cleanly in a single number—until month-end, when margin feels mysteriously thinner.

Let’s unpack where the silent bps hide and how to claw them back without switching PSPs.

The costs your NER glosses over

1) Chargebacks (and the evidence tax). Global chargeback volume is projected to rise 24% from 2025 to 2028 to ~324M annually. That’s a structural headwind: every weak evidence trail is not just a lost sale—it’s extra network fees, labor, and distraction. The fix: treat evidence as part of the transaction, not a scavenger hunt later. b2b.mastercard.com

2) Returns and refunds. Retailers forecast $890B in returns for 2024 (16.9% of sales). Refunds carry assessment fees, lost credits in some cases, and extra handling—all quietly inflating NER after the fact. Tighten refund flows, descriptors, and item-level links so you can see (and minimize) the true cost per return. National Retail Federation

3) Cross-border, FX and scheme add-ons. Interchange is only the base fare. Cross-border and assessment fees vary by currency and region and often hit weeks later. If you’re reporting a single blended rate, you’re likely masking geography-mix penalties.

4) Data quality (L2/L3). In B2B, missing Level 2/3 fields means you forfeit lower qualifying rates. The culprit is usually mapping between the cart/ERP and the PSP—fixable, meaningful bps.

5) “Approval at any cost.” Routing and retry strategies can lift auths but also add network and processing fees. Route on net margin per 1,000 orders, not approvals alone.

Make the cost visible: a simple “payments cost tree”

When we work with merchants, we model cost as five stacked layers so Finance, Payments, and Ops can argue with the same truth:

1. Core processing: interchange + acquirer margin + scheme assessments (domestic + cross-border).

2. Authorization tactics: retries, network tokenization, and local vs. cross-border routing (benefit minus extra fees).

3. Disputes: fees + labor + lost goods, tied to your actual win-rates.

4. Refunds/returns: attach fees and handling cost per refund; trend it by category.

5. Data quality & compliance: L2/L3 qualification rates by product/channel and the bps gap vs. target.

Once this view is live, the “mystery” bps stop being mysterious—and start being fixable.

A 30-day plan to lower NER (without changing PSPs)

Week 1 — Pull the truth together. Export the last 90 days of PSP logs, acquirer settlements, network fee lines, bank funding, returns, and dispute outcomes. Centralize them so each order has a full lineage from auth → capture → settlement → funding → fees → refund/chargeback. (If you want a ready-made path, see Optimus’ Payment Reconciliation product module.)

Week 2 — Start a daily fee-audit loop. Normalize fees against your contracts and card-brand rules; alert when anything drifts beyond your threshold. Most teams catch mis-tiering or duplicate assessments in week one.

Week 3 — Remove preventable cost.

• Fix L2/L3 coverage so B2B cards qualify for better rates.
• Tune routing to weigh approval uplift and bps impact.
• Auto-attach evidence (descriptor, delivery/usage, 3DS) so disputes don’t become archaeology.

Week 4 — Lock it in. Publish a one-pager: bps saved, fee errors fixed, dispute win-rate change, and a forecast of annualized savings. Shift from month-end matching to continuous reconciliation so close becomes measurement, not discovery.

What to watch monthly

• bps saved from fee anomalies and L2/L3 fixes
• Net margin per 1,000 orders by market/rail (not just approvals)
• Dispute win-rate and cost per dispute, post evidence automation
• Refund rate and unit cost of refunds, by category

Bottom line

Your NER isn’t lying—it’s just incomplete. When you light up the after-the-sale costs, you’ll find basis points hiding in plain sight. Bring all fees, funds, and evidence into one place, audit them daily, and route for net margin. The result isn’t just a nicer dashboard; it’s durable EBITDA.

Want a hand wiring this up? Explore Optimus: Payment Reconciliation to reconcile every cent and make fee audits a daily habit.