What are the costs and revenues involved in a single transaction for an issuer processor?

Guest: Okay, starting from the topline, it will depend on the classification of the card, but broadly speaking for consumer card products, the debit interchange is around 135 basis points. There's a sticker price that's I think like 165 basis points, but I think in practice, that comes out to 135 or so basis points. And that'll depend on your transaction mix type, what percentage of your transactions are card not present, what percent are groceries, what percent is gas station. 

There are certain types of purchases where the interchange take rate is lower. And so round number is 135 topline for a consumer. For a commercial or a B2B card, the interchange is usually around, call it 240 to 250 basis points.

Sometimes it may be a little higher if you're in one of the really high-end classifications, then again, there's that variance there because of the mix of card transactions on specific to a program, or let's say, 135 and 250 for the commercial side. 

Out of that, I think your card networks, there's some variance here again, because it varies so much by transaction type and mix. But I think they'll take something on the order of 50 basis points and tiers down and get rebated over time as you hit more scale. 

I'll go to the bank first. The bank will start out quite high and that will be anywhere from 20 or 30 basis points. And then they'll tier down over time. The bank gets very compressed. I think if you look at Marqeta, Sutton, that's on the order of two or three basis points. And so it starts very high and just gets compressed down. Probably it starts actually lower than 30, maybe like 20 basis points or so is where the bank usually starts. And it'll go down to like two or three.

Let's see, oftentimes the processor will take a cut too and the program manager will take a cut. And there's probably the most variance there. We're looking at probably 25 to 30 basis points as well. So, I think what you see here is like between the different players here. There's oftentimes not a ton of margin left for the FinTech company until they get to true scale.

Sacra: So just to recap, if we take a B2B as an example, so we start with 250 basis points for the income range and of which say 20 basis point is paid to the issuing bank and then say 30 basis point is paid to the card network. So we're leaving with 200 basis point. And then these 200 basis point is split between the base. So the banking-as-a-service platform and FinTech partner.

Guest: Yep.

Sacra: So then these 200 basis points I looked at Marqeta's disclosure, it seems Marqeta's take rate is 45 basis point. And this has been trending down from 70 basis points back in 2019, which then if we use like 200 then minus 45, this implies, the FinTech partners Klarna, are DoorDash, Square, they will have 155 basis point out of the whole interchange.

Guest: Yeah. I think that seems about right. The one tweak I'll make there is because their largest customer is Square and it's a consumer card, you're probably wanting to start at 135 basis points topline, and then the margins get a little tighter.

And I will also add that part of the reason why a market take rate has been trending down is probably because, for consumer cards, the margins are just tighter and they're able to command less of a... Just economically, they just can't command as much.