UK Card Processing Fees

Fees incurred for processing card payments can be roughly split into two types; fees incurred for each specific transaction and monthly or one-off costs charged for the payment services and hardware (e.g. POS terminals).

We’ll cover both types but let’s start with the card processing fees charged for each transaction which are bundled into one charge known as a merchant service charge (MSC) or merchant discount rate (MDR).

Merchant service charge (MSC)

Acquirer Markup

These are the card processing fees charged by the merchant acquirer to cover their fees and profit margin. They are also known as the acquirer markup or processing fees.

Acquirer fees are the only element of the transaction charges that are variable between providers and provide the opportunity for savings. 

It is hard to give a typical processing fee as they vary so much by the card used, if the transaction is domestic or inter-regional, if the card holder is present, the merchant category code and the acquirer.  

If a merchant was not recruited directly by an acquirer but an independent sales organisation the acquirer markup will need to cover the acquirers profit margin, costs and commission they need to pay to the ISO. This commission is paid as a reward for finding, onboarding and managing the relationship with the merchant. 

For example, Handepay is an ISO and uses Evo Payments for its acquiring services. Handepay  may offer a merchant a blended rate of 1.5% for processing in person transactions which will cover 1.2% retained by Barclaycard for their acquiring services plus 0.3% commission Evo Payments pay to Handpay (Note: these rates are hypothetical).  

Interchange fees

These are the card transaction fees that card acquirers pay to issuers each time a card is used to buy goods or services. They are typically charged as a fixed percentage and non-negotiable.

Typical interchange fees are 0.2% for debit cards and 0.3% for credit cards for UK consumer cards. Rates are higher for commercial cards.

See our guide to interchange fees here which includes a table of interchange fees.

View Interchange rates for Visa | Mastercard

The main factors determining the level of interchange fees are:

Card scheme fees

This is another name for the card company (e.g. Mastercard) and each card scheme charges different interchange fees.

Card-present vs card-not-present (CNP)

Card-not-present transactions such as those done over the phone, through a virtual terminal, or online, are usually considered riskier than transactions done in person so they tend to have higher interchange rates.

Merchant category code (MCC)

The MCC is a four-digit used by credit card companies to categorise businesses. Those businesses operating in a category that is deemed lower risk may be offered lower interchange fees.

Consumer vs. commercial

Commercial cards typically incur higher interchange fees than cards issued to consumers.

Transaction regionality

Domestic transactions, when the card-issuing bank or organisation is in the same country as the business, will be cheaper than cross-border transactions.

Following the UK withdrawal from the EU, transactions between the UK and the EEA are now being re-classified as inter-regional transactions and incur higher card-not-present (CNP) fees.

Card authentication

The way the customer authenticates themselves (e.g. chip and PIN, contactless) can also affect the interchange rate.

Reward cards

Finally, reward cards are another key factor that influences the interchange rate amount. When customers pay for their goods or services using a reward card, the interchange fees tend to be higher. That’s because the increased fees pay for the extras offered by reward programs.

Interchange rate caps

There are dozens of interchange fees and pretty complex but they are all published online.

It is worth noting that the Interchange Fee Regulation (IFR) changes in December 2015 capped interchange fees on most card transactions (typical interchange fees are 0.2% for debit cards and 0.3% for credit cards).

Mastercard and Visa revised the interchange fees for transactions between the UK and EEA from October 15th 2021 due to the UK leaving the EEA. 

As you can see in the chart below, UK merchants can be thankful they benefit from interchange fees far below the US.

Chart: International Interchange Rates

Consumer credit cards are regulated in Europe with in-person interchange fees capped at 0.30% per transaction. China and Australia have similar regulations and in Canada Visa and Mastercard have agreed to limit their fees on average to 1.40%.

Unfortunately, there are no interchange fee caps protecting US merchants or network routing competition resulting in some of the highest interchange fees in in the world.

See a more comprehensive guide to interchange fees here.

Card Scheme Fees

Scheme fees are paid by card acquirers to the operators of card payment systems such as Mastercard, Visa and UnionPay to cover their maintenance costs for providing their payment network.

The total scheme fee is composed of assessment fees, cross-border fees, clearing and settlement fees. The card type used and the geographical location of the acquirer will affect the total amount charged.

Scheme fees are fixed and non-negotiable and are made up of a payment technology fee and a base fee. These fees are determined by:

• Type of card (e.g. corporate, consumer)
• Type of transaction (card present or card not present)
• Authorisation fees
• Transaction volume/size
• Cross-border transaction costs
• Licensing fees
• Scheme fees for reports
• Anti-money laundering processes and fraud prevention
• Marketing and innovation funds

As you see, scheme fees are influenced by similar factors as interchange rates.