Cheapest Merchant Services For Small Businesses

Published 21st April 2021

Finding a cheap merchant service provider is not as simple as comparing card processing fees in a table. We look at 5 factors that affect merchant service fees.

 

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Cheapest Merchant Services For Small Businesses

There are a few things you need to take into account when trying to choose among the cheapest merchant services provider for your specific business. It isn’t simply a question of finding a one-size-fits-all solution, because the “cheapest” will depend on what type of business you run and how much card turnover you need to process on a regular basis.

Businesses with smaller sales transactions will find different rates more cost-effective than businesses with larger transactions. The type of payment cards a merchant accepts and the length of service contract available also has a bearing on costs.

Below shows the range of merchant services costs you can expect from a merchant service provider. 

ItemWhat is it?Cost
Monthly FeeA fee you’ll pay if you fail to process the agreed amount of credit card payments each month£15+
Terminal RentalThe rental charge for the chip and PIN machines£14-25 per month
Online Payment GatewayIntegration of hosted checkout pages and an API for custom development£20-£75 per month
Virtual TerminalSoftware to support telephone and mail order transactions£15-£75 per month
ChargebackFixed fee for each transaction reversed£9
Early Termination FeeFee is contract is terminated early – will depend on length remaining on the contractVaries
Setup FeeFixed cost at start of the contract£150
Cancellation FeeFixed fee if you cancel the contract£115 + VAT
Minimum Monthly Transaction FeeMin amount charged each month on transaction fees£20
Data Security ManagementFee charged to meet PCI compliance standards£2.40 + VAT per month
Authorisation ChargeCharged each time a business authorises a credit card transaction3p
Non-Secure TransactionsFees for higher risk payments like Mail, telephone, online without 3d verification, non Chip & Pin0.85%
PCI Non-ComplianceFine for failing to keep your account compliant with PCI DSS standards0.30%
RefundsFee for processing refunds30p

The following 5 factors will influence the quotes merchant service providers will give you. 

1. Card turnover

The average card turnover, or revenue from card payments, indicates the amount of potential business a merchant will represent to an acquirer. The higher the card turnover for your business, the more you will be able to negotiate on a service package.

For businesses taking just face to face payments with less than £2,000 – £3,000 of card transactions per month the cheapest option would be a card reader from a payment facilitator like Square or iZettle. These services may charge higher transaction fees but have lower setup costs, which is ideal for small startups.

A payment facilitator acts as a middleman between a merchant and an acquirer, allowing small businesses to get up and running faster by handling the setup process through a master merchant account. Payment facilitators cap their rates at a fixed percentage, while merchant acquirers typically charge higher rates and provide better deals for larger businesses.

2. Average card spend

The average amount of money processed in a single card transaction is important in determining the overall cost of a merchant service. This is because some acquirers charge a fixed percentage rate, while others charge a percentage share plus an additional rate, for example, 1.5% + 20p per transaction. A smaller card purchase would generate a smaller charge based on a fixed percentage rate, while a larger purchase would have a smaller charge from the combined rate.

Assessing the amount of money customers spend on an average purchase will help you compare different acquirers’ fees and estimate which will work out cheaper for your business.

3. Payment integration

Running an integrated payment system saves time and money compared with a non-integrated system, so it’s worth finding out if a merchant service will support the system you have in place or will provide an integrated setup.

With an integrated system, a payment card reader and Electronic Point of Sale (ePOS) can transfer data through certified payment application software. This enters the transaction value into the card reader automatically, so you don’t need to manually enter the amount into both the card reader and the ePOS each time a payment is made. That saves time and time is money when processing a high volume of transactions.

An integrated system is also important for e-commerce services, so that you can share payment data with the store platform provider to make the best use of sales reporting and inventory management tools.

4. Card types

Merchant acquirers typically charge different transaction fees for different card types, for example, fees are typically around 1% higher for processing payments from American Express cards. Acquirers also tend to charge more for credit cards linked to business or overseas accounts than for UK consumer debit cards. However, some payment facilitators charge flat rates regardless of the card type.

If you run an online store you need to make sure that the merchant acquirer supports e-commerce transactions and also enables you to accept payments from electronic wallets like Apple Pay and Google Pay. Acquirers may charge higher fees for e-commerce services as they carry a higher risk of fraud and customer data breaches.

5. Contract options and length

The type and length of contract you sign up for also has a bearing on the processing fees merchant acquirers charge. There are different options for contract length and the commitments you make during the contract period:

  • Payment facilitators can offer pay-as-you-go contracts without a minimum fee, although the overall cost of the service may be higher to offset the increased flexibility.
  • Some merchant acquirers offer lower rates for longer contracts and may require a minimum term, for example, 12 months.
  • Some acquirers do not specify commitments for the processing account but require merchants to use their card payment terminals.
  • Other acquirers that do not specify commitments require a long notice period to cancel the account.

Consider whether you want to be locked into a long-term contract, because if the business grows quickly you may be able to negotiate better rates under a new contract.

How To Find The Cheapest Merchant Service Provider For Your Business

We have access to 90% of the UK’s leading acquiring banks, so we can help you identify the cheapest merchant services and secure the best deals for your business. Our independent and unbiased advisors provide expert advice on contracts and hidden fees, helping you to make an informed decision about which service to choose. Fill in our quick quote request form and we’ll negotiate the best rates for you. 

Examples of Fees Charged by Merchant Service Providers

Below is a table showing how fees differ between popular card readers, ecommerce platforms and payment gateways that don’t require monthly contracts and publish their fees.

CompanyiZettleSumUpShopifyStripe
TypeCard ReaderCard ReadereCommercePayment Gateway
Debit Card Transaction Fees1.75%1.69%1.9% + 20p*1.4% + 20p
Credit Card Transaction Fees1.75%1.69%1.9% + 20p*1.4% + 20p
Monthly FeesNoneNoneAround £60*None
Contract Required?NoNoNoNo

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