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A take rate refers to the fees online marketplaces (such as Amazon or eBay) or third-party service providers (such as PayPal) collect for enabling third-party transactions.
Put simply, a take rate is how much money a business makes from a transaction. Take rates help companies understand how well the business is doing. Typically, higher take rates indicate that a company is successful because it can generate more revenue.
By keeping a close watch on their take rates, companies can make better business decisions — for example, knowing when to allocate resources to maximize sales or increase their marketing efforts.
Although take rates are not new, the term has become more popular with the increase of companies like Airbnb, Shopify, Etsy, and PayPal. However, the card networks like American Express, Mastercard, and Visa have used take rates to define their revenues for many years.
Understanding how important online marketplaces are to ecommerce, PayPal purchased shopping tool developer Honey Science Corp. in 2019 for about $4 million in cash because it wanted to do more than just process payments. The company's goal was to increase its take rates via the marketplaces.
A take rate also allows investors to figure out how businesses such as Amazon and PayPal capture more customers and generate revenue.
How to Calculate a Take Rate
A take rate, which is the percentage of gross merchandise volume collected by the marketplace, is typically between 10% and 30%.
To calculate the take rate, divide the amount of revenue earned from a transaction by the total amount of the transaction, then multiply by 100 to get a percentage. For example, a company that earns $4 from a $100 transaction has a take rate of 4%.
Another take rate example would be an individual buying a shirt for $10 and using a payment service provider to complete the transaction. If the payment service provider charges a $2 fee, the take rate would be 20%.
The average size of an order and how often transactions occur help establish the take rate. For instance, service marketplaces such as Uber and Lyft that enable frequent, lower-cost transactions usually charge lower take rates. On the other hand, platforms like Airbnb that enable higher-cost, infrequent transactions charge higher take rates on higher-value orders.
Factors That Affect a Take Rate
When it comes to product marketplaces that enable transactions on behalf of third-party sellers, the take rate can differ based on the goods that are offered. As an example, the take rates Amazon charges vary based on the type of product it is selling. That means that the take rate for electronic items is not the same as the take rate for household products.
Chargebacks can also reduce a merchant's take rate as a result of the penalties and fees that the merchant needs to pay back to its customers.
Additionally, the more transactions merchants process, the higher their take rates (and vice versa). That's because many payment processors will offer discounts to companies with high-volume sales.
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Everything you need to know about the payment rails that power the world’s economy, from ACH and wires to RTP, FedNow, and more.
ACH APIs enable companies with high transaction volumes to write software that automates payments over the ACH network.
An ACH credit refers to the process of electronically depositing, or “pushing,” funds into a bank account using ACH.
In an ACH debit, funds are electronically withdrawn, or “pulled,” from a bank account using ACH.
A Notification of Change (NOC) is used to notify the sender of an ACH payment to correct or change information related to a customer’s bank account.
A return is a credit or debit entry initiated by the Receiving Depository Financial Institution (RDFI) that returns a previously originated payment to the Originating Depository Financial Institution (ODFI).
ACH return codes identify the reason an ACH payment was returned by the recipient's bank. They make it easier to spot and resolve payment failures.
An ACH reversal refers to an erroneous ACH payment that a payment originator requests to take back, or reverse.
The Clearing House Interbank Payments System, or CHIPS is the largest private sector USD clearing system for wire transfers.
Credits and debits are two kinds of ACH transactions. Whereas a credit involves depositing, or “pushing,” funds into a bank account, for a debit, funds are withdrawn, or “pulled,” from an account.
FedACH is the automated clearing house (ACH) service of the Federal Reserve Banks.
Part of the FedACH system, FedGlobal ACH offers low-cost and efficient cross-border ACH payments.
Fedwire Funds Services, commonly known as Fedwire, is a real-time gross settlement transfer system that allows participating financial institutions to send and receive same-day fund transfers.
Fiat money is a form of currency issued by a government and declared legal tender, though not backed by a commodity.
The two kinds of financial institutions in the ACH network are ODFIs (Originating Depository Financial Institution) and RDFIs (Receiving Depository Financial Institutions).
A Standard Entry Class or SEC code is a three letter code that describes how a payment was authorized by the consumer or business receiving an ACH transaction.
A SWIFT code, also known as a SWIFT ID or Bank Identifier Code (BIC), is a unique 8-11 character code assigned to a bank for SWIFT wire transfers.
US companies moving money internationally will likely weigh the pros and cons of SWIFT vs. Global ACH when it comes to attributes like speed and cost.
The Clearing House (TCH) is a banking association and payments company owned by 20 of the world’s largest commercial banks.
Pix is Brazil’s instant payment platform that launched on November 16, 2020. Created and managed by the Central Bank of Brazil, Pix enables fast payments and transfers at any time, year-round.
SWIFT payments or international wires are global payments made through the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network.
ACH (Automated Clearing House) is a payment processing network that’s used to send money electronically between banks and financial institutions in the United States.
An electronic funds transfer (EFT), also known as a direct deposit, is the digital transfer of money between bank accounts. As digital transfers, they reduce the need for manual input and paper documents.
FedNow is a new payment rail that enables faster bank payments for financial institutions of any size, in any community, 365 days of the year.
Global ACH can help companies move money from US-domiciled accounts across borders using local rails. Learn how and when to use this payment rail.
RTP (Real-Time Payments) is a payment processing network used to send money electronically between banks in the United States. It transfers funds between two bank accounts instantaneously and is available year round.
A Request for Payment (RFP) is an ACH Network message that can be used by businesses to send electronic invoices to their customers.
Same-Day ACH is an improvement to the ACH network that allows the processing of credit, debit, and return transactions several times a day.
A take rate refers to the fees online marketplaces (such as Amazon or eBay) or third-party service providers (such as PayPal) collect for enabling third-party transactions.
A wire transfer is an electronic payment made through a global network, allowing for fast, irreversible, foreign or domestic electronic money transfers.
A pre note or prenotification is a zero dollar payment to validate the account and routing details of a bank account before debiting or crediting it.
An International ACH Transfer—also known as Global ACH—is an ACH payment made cross-border from a US-domiciled account.
Originally known as Bankers’ Automated Clearing System (BACS), BACS Payment Schemes Limited clears and settles direct debit, BACS direct credit, and current account switch service in the United Kingdom.
The Bulk Electronic Clearing System (BECS) is a streamlined electronic payment method used to process low-value, bulk transactions in Australia and New Zealand.
The Faster Payments Service (FPS) is a banking service in the United Kingdom. The FPS was instituted in order to reduce payment times between accounts held by different customers.
The Single Euro Payments Area (SEPA) is a system of payment schemas that standardizes cashless transactions in euros.
Unified Payments Interface (UPI) is a real-time payments system for mobile applications designed and launched by the National Payments Corporation of India.
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