More than 61 million credit cards were in circulation at the end of 2019, and the number of purchases made by credit card is predicted to rise significantly over the coming years – surpassing cash payments as soon as 2028.
The bottom line? Every business needs to enable customers to buy via credit card.
Until recently, UK companies were able to pass on credit card processing fees to their customers. But, in January 2018, this practice was banned – and it is now against the law for any business in the UK to off-set processing fees through check-out surcharges.
So what can you do, to limit the cost of taking credit card payments?
In this guide, we’ll touch on everything there is to know about credit card processing fees in the UK: what your options are for processing credit card payments, and what to watch out for when choosing a payment services provider.
Put simply: your business will be charged whenever a customer pays by credit card. The amount you get charged depends on a few factors including:
The bulk of your charges will be taken up by transaction processing, but there are other fees to consider too, including merchant service charges and authorisation fees.
|Fee||What is it?||Amount|
|Transaction Fee||Charge per credit card transaction||Between 1% and 3% of the purchase value|
|Interchange or discount rates||Charge per credit card transaction||0.3% max|
|Authorisation fee||Flat charge per transaction||1-3p per sale|
|Minimum Monthly Service Charge||A fee you’ll pay if you fail to process the agreed amount of credit card payments each month||£5 – £25|
|Terminal Hire||The rental charge for the chip and PIN machines||Typically £14 – £25 depending on whether countertop, portable or mobile|
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%.
This fee comes from the credit card association that issued the card, typically Visa, Mastercard or American Express. In June 2015 the EU brought out legislation that prevented card issuers from charging more than 0.3% in merchant service fees for credit card payments.
Typical Interchange Fees: 0.2% for debit cards and 0.3% for credit cards.
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: 1-3p per transaction.
The transaction fee can go up if the cardholder is not present when the transaction takes place. For example, 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.
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%|
|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.
|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*|
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, iZettle 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, iZettle 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 iZettle 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.
See more credit card readers here.
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.
Shopify is an eCommerce platform that allows users to create an online storefront and sell directly to customers via the internet, or face-to-face with the POS add-on.
To get the best value for money, you need to let Shopify process debit and credit card transactions on your behalf, however the rates are fairly competitive 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.
It can vary a lot, but the average amount you’ll pay for credit card processing is 2-4% of the value of the purchase.
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.
Banks tend to be quite competitive with merchant fees, but you’ll find the best deals with merchant acquirers like Barclays or Lloyds.
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 legislation governing merchants being able to charge credit card fees also applies to debit cards. So no, merchants cannot charge debit card fees to customers.
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.
No. It is against the law to off-set payment processing fees to your customers.
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