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There are 4 main types of card processing fees that flow between card acquirers, merchants that take the payments, card issuers and the operators of card payment systems. These include:
There are the fees card acquirers pay to issuers each time a card is used to buy goods or services.
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).
There are the fees card acquirers and issuers pay to the operators of card payment systems.
This is the total amount merchants pay to merchant acquirers or ISOs in exchange for using their services. It includes interchange fees, scheme fees and the net revenue of the merchant service provider (which covers their other costs and profit margin).
These are the fees cardholders may pay to the card issuers. This article will not deal with these types of fees as they are not charged to the merchant.
The following factors have a large influence on what card processing fees your business will be quoted:
Unlike payment facilitators like Zettle and SumUp which publish fixed prices on their website, most acquirers and ISOs provide bespoke quotes and don’t have fixed fees. Their merchant service charges will depend on certain factors including:
Most sales staff in merchant acquirers and ISOs have some authority to negotiate on prices within set parameters.
The value of card transactions a merchant accepts is one of the most important considerations for acquirers and ISOs when providing quotes to a merchant.
A higher volume of transactions can also improve your negotiating position.
Whilst all acquirers recognise the need to be price competitive they are very protective over their profit margins and will try and differentiate themselves through other elements like the quality of customer service, hardware provided, contract terms, integration possibilities etc
| Item | What is it? | Cost |
|---|---|---|
| Processing fees or merchant service charge (MSC) | A fee based on the amount transacted. Higher for credit cards and if card and when card holder is not present (i.e. online or over the phone) | 0.5% – 3% |
| Monthly Fee | A fee you’ll pay if you fail to process the agreed amount of credit card payments each month | £15+ |
| Terminal Rental | The rental charge for the chip and PIN machines | £14-25 per month |
| Online Payment Gateway | Integration of hosted checkout pages and an API for custom development | £20-£75 per month |
| Virtual Terminal | Software to support telephone and mail order transactions | £15-£75 per month |
| Chargeback | Fixed fee for each transaction reversed | £9 |
| Early Termination Fee | Fee is contract is terminated early – will depend on length remaining on the contract | Varies |
| Setup Fee | Fixed cost at start of the contract | £150 |
| Cancellation Fee | Fixed fee if you cancel the contract | £115 + VAT |
| Minimum Monthly Transaction Fee | Min amount charged each month on transaction fees | £20 |
| Data Security Management | Fee charged to meet PCI compliance standards | £2.40 + VAT per month |
| Authorisation Charge | Charged each time a business authorises a credit card transaction | 3p |
| Non-Secure Transactions | Fees for higher risk payments like Mail, telephone, online without 3d verification, non Chip & Pin | 0.85% |
| PCI Non-Compliance | Fine for failing to keep your account compliant with PCI DSS standards | 0.30% |
| Refunds | Fee for processing refunds | 30p |
These can vary wildly depending on which bank issued the card, and which card processing platform you (as the merchant) are using.
Typical Transaction Fees: Average estimates vary. Visa and Mastercard transactions will carry the base credit card processing fee, but Amex cards will cost more. Generally between 1% and 3% with an average of around 1.5%.
Your card processor will need to authorise the transaction with the issuing bank, and this incurs a small fee for each sale.
Typical authorisation Fees: 1p-3p per transaction.
The transaction fee can go up if the cardholder is not present when the transaction takes place. If the customer pays online or by phone the bank is taking on more risk by authorising the transaction and so will charge a higher transaction fee.
Typical Payment Method Fees: Can add around 2% on top of the transaction fee.
If a customer requests a chargeback (e.g. a refund), then the bank that issued the card will reverse the payment to the merchant. The merchant will be charged an admin fee for this.
Typical Chargeback Fee: £10-£20 per chargeback.
Most credit card processing providers will demand a minimum monthly service charge (typically around £5-£25) so they can turn a profit from all their business customers.
If your monthly transaction fees are higher than the MMSC, your payment processor will not add any additional charge. However if your transaction charges fall below the threshold, your supplier will add additional charges to bring your monthly bill up to the MMSC.
When handling sensitive data, such as customer credit card details, you’ll need to make sure you’re doing so in compliance with Payment Card Industry Data Security Standards. This doesn’t just mean reading up on the latest card fraud protection trends – although you should do that too – there are in fact costs of staying compliant.
Your business will need to undergo a series of checks, to make sure it’s not exposing customers to risk or fraud. What these ‘checks’ look like will depend on the size of your business and how many transactions you process. Many merchant account providers will handle this for you, for a small fee – so make sure you ask!
If you process fewer than 1 million transactions a year (and 20,000 via ecommerce) you can expect to pay around £60 a month in PCI Compliance fees. At the other end of the spectrum, sellers who process more than 6 million transactions a year (or have suffered a data breach or attack) should expect to pay £50,000 a year.
A word of warning: some payment processing platforms will charge you an account set up fee. Although you shouldn’t expect to pay more than £99 in set up fees, this is a cost that can be avoided with adequate research and shopping around.
If you want to switch credit card payment processors before the end of your agreed term, you may need to pay an early termination fee. How much you’ll pay will depend on who you are dealing with, and how early you’re terminating the contract. In the worst cases an early termination fee could end up costing you a few hundred pounds.p
Businesses are typically offered one or more of the following pricing structures:
The interchange fee applicable to that transaction is automatically passed on to the merchant at cost by the acquirer. The scheme fees are not passed on at cost price.
The interchange fee and scheme fees for any given transaction are automatically passed on to the merchant at cost by the acquirer (so the processing fee recovers some or all the acquirer’s other costs plus their margin). This fee structure is normally only available to the highest card turnover businesses.
Standard
The acquirer or ISO does not automatically pass through the interchange and scheme fees at cost price.
The amount paid is fixed for each transaction if card turnover stays below certain limits. These tend to be offered to the micro-business with the lowest card turnover.
Approximately 98% of all small and medium-sized businesses are on standard pricing and will not qualify for the lower fee IC+ or IC++ pricing.
Around 35% of large merchants with annual card turnover above £50 million have IC+ or IC++ pricing and 55% have standard pricing.
Large merchants generally pay lower MSCs than SMEs, no matter which pricing option they are on.
With IC+ and IC++ pricing, acquirers compete for business with their low processing fees (also called a management fee), which is applied for each purchase transaction (and, in some cases, for each refund).
Below is a table outlining the fees of some of the largest merchant account providers.
| Company | Worldpay | Global Payments | Barclays | Lloyds Bank |
|---|---|---|---|---|
| Debit Card Transactions | 0.75% | 25p | N/A | 1.25% |
| Credit Card Transactions | 2.75% | 1.1% + 19p | 2.60% | 1.25% |
| Monthly Fees | £19.95 | N/A | N/A | N/A |
| Contract Required? | 18 month minimum | N/A | 12 month | 6 months |
Below is a table showing how fees differ between popular card readers, ecommerce platforms and payment gateways.
Stripe is a payment processing platform that facilitates online card payments.
Debit and credit card processing fees start from just 1.4% + 20p, and there’s no setup costs, monthly costs or hidden costs when using Stripe – so businesses of all sizes can get onboard.
See more payment gateways here.
Using an ecommerce platform like Shopify will bring many benefits but cheap card processing fees is not one of them.
If you use Shopify Pay to process process debit and credit card transactions as these rates are at a fairly uncompetitive at 1.9% + 20p. You can use another payment processor, but this will add 1% to your transaction fees.
The monthly cost is high – at around £60 a month – but this provides access to the Shopify platform where you run your store, and not just to the payment processing platform.
Compare the fees of more ecommerce platforms here.
| Company | iZettle | SumUp | Shopify | Stripe |
|---|---|---|---|---|
| Type | Card Reader | Card Reader | eCommerce | Payment Gateway |
| Debit Card Transaction Fees | 1.75% | 1.69% | 1.9% + 20p* | 1.4% + 20p |
| Credit Card Transaction Fees | 1.75% | 1.69% | 1.9% + 20p* | 1.4% + 20p |
| Monthly Fees | None | None | Around £60* | |
| Contract Required? | No | No | No | No |
Below are some of the more popular merchant account providers. If you are not sure if you need to sign up with one, check out our merchant account guide.
Worldpay is the leading merchant account provider in the UK, and processes upwards of 400 transactions every second. Thanks to its global network, Worldpay clients can do business with customers from all over the world.
Here, the credit card processing fees are competitive for a company of Worldpay’s size and stature, offering 0.75% on debit card transactions and 2.75% for credit cards. Monthly account fees depend on the size of your business.
Partnered with HSBC, Global Payments is responsible for processing around 20% of all transactions in the UK. True, Global Payments caters more for larger businesses, but the offer is still worthy of consideration from small traders – the flat, 25p debit card processing fee is a particular benefit.
For credit cards, the transaction fees start at 1.1% + 19p and the monthly fees are reasonable.
Be careful though – you might be caught out by their hefty termination fees if you close your account while in contract.
Barclays is well known for providing excellent support to merchant account holders. But a word of warning for SME owners: the arduous application process, and steep fees, makes Barclays unsuitable for small companies. For credit card processing, you could pay 2.6% per transaction – a higher rate than most other payment processors in this guide.
What’s more, because it mostly deals with larger companies, Barclays imposes lengthy contracts, high service fees and high termination fees.
Arguably better suited for small businesses, particularly if you bank with them already, Lloyds has a slightly less overwhelming application process, and a more flexible 6 month minimum contract (as opposed to Barclays’ 12 month commitment).
The credit card processing fees are more competitive for small business, too. Lloyds Bank Cardnet processes 1.1 billion transactions per year, and will charge from 1.25% for processing a debit or credit card payment.
See more merchant account providers here.
Acquired by PayPal in 2018, Zettle is one of the most popular point-of-sale (POS) solutions in the UK. The year before it was bought by PayPal, iZettle processed £87m of payments globally – a figure which has risen astronomically since.
With low credit card processing fees, no monthly account costs and a flexible rolling contract, Zettle is particularly popular among small retailers who need a quick and easy way to accept card payments from customers. Transaction fees are fixed at 1.75%.
The main competitor to Zettle among simple POS services, SumUp offers slightly lower transaction fees of 1.69% within the UK as well as no fixed monthly charges and a rolling monthly contract.
For both SumUp and iZettle, you will need to purchase their card machine which costs around £30.
The cheapest rates will be available to those businesses with a merchant account processing a high volume of monthly card sales. These businesses may be able to secure transaction fees of under 1% but it will depend on the business type.
The lowest will depend on your specific business type as they are often determined on a bespoke basis.
In short: yes. But debit card processing fees tend to be lower than credit card payment fees. This is due to the lower risks associated with accepting payments from debit cards.
The only sure way to avoid credit card processing fees is to not accept credit card payments from customers. However, the amount of customers you could miss out on by doing this is likely to damage your business more than credit card processing fees possibly could.
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