How Much are Credit Card Processing Fees in the UK?

Understanding the Costs Associated With Accepting Credit Card Payments

Credit card processing fees for UK businesses in 2024 generally consist of a percentage fee per transaction, ranging from 0.4% to 3.5%. This percentage fee often includes various components such as interchange fees, transaction fees, and card scheme fees.

In addition to the percentage fee, businesses may also be charged other fees, such as authorisation fees (commonly 1-3 pence per sale) and merchant service fees (usually between 0.25% and 0.35%).

Below, I’ll go deeper into transaction fees, interchange fees, and other costs that could be lurking in your merchant account statements. I’ll also offer strategies to minimize these costs, thereby improving your operational efficiency and profitability.

Finally, I’ll list the providers who offer what I’ve researched to be the most competitive rates.

What Are Credit Card Processing Fees?

Credit card processing fees are the costs that merchants incur for the ability to accept credit card payments. These fees are generally divided into three primary categories:

Interchange Fees

Interchange fees are paid by the merchant’s bank to the cardholder’s bank. They compensate the cardholder’s bank for the risk and cost involved in processing the transaction. These fees vary based on several factors, including the type of card (debit or credit), the business sector, and the transaction method (e.g., online or in-store). They form a substantial part of the total cost of credit card processing for merchants.

Example Interchange Fees:

• Debit Card Transactions: Around 0.2% of the transaction value.
• Credit Card Transactions: Approximately 0.3% of the transaction value.
• Premium/Rewards Credit Cards: Between 0.8% to 1.0% of the transaction value.

Transaction Fees

Transaction fees are charged by the payment processor each time a transaction is processed. These fees can be a combination of a percentage of the transaction value and a fixed charge per transaction. The exact amount can vary depending on the processor, the type of transaction, and the risk associated with the transaction. They are a crucial consideration for merchants as they directly impact the cost per sale.

Example Transaction Fees

• For Standard Card-Present Transactions:
  • Percentage Fee: 1.2% of the transaction value.
  • Fixed Fee: 10p per transaction.
• For Online or Card-Not-Present Transactions:
  • Percentage Fee: 1.9% of the transaction value.
  • Fixed Fee: 20p per transaction.
• For International Transactions:
  • Percentage Fee: 2.5% of the transaction value.
  • Fixed Fee: 30p per transaction.

Card Scheme Fees

Card scheme fees are imposed by the credit card networks, such as Visa or Mastercard, for using their network. These fees are typically a small percentage of each transaction and are paid to the card networks to cover various services like fraud monitoring, network maintenance, and the provision of benefits like reward points or travel insurance.

Example Card Scheme Fees:

• Visa/Mastercard Standard Transactions: Typically around 0.1% to 0.12% of the transaction value.
• High-Value or Business Card Transactions: Slightly higher, often around 0.13% to 0.15% of the transaction value.
• Additional Benefits Cards: For cards offering rewards or travel insurance, fees can be approximately 0.15% to 0.2% of the transaction value.

Authorisation Fees

Authorisation fees are incurred each time a customer’s credit card is authorised, irrespective of whether the transaction is successfully completed. These fees cover the cost of checking the card’s validity, ensuring sufficient funds or credit limit, and securing approval from the cardholder’s bank. They are essential for fraud prevention and security, but they add to the cost of processing transactions, especially in high-volume or high-value businesses.

Example Authorisation Fees:

• Standard Authorisation Fee: Typically around 1p to 2p per authorisation.
• High-Volume Businesses: May negotiate lower fees, potentially around 0.5p to 1p per authorisation.
• Specialised Transactions: In cases requiring additional security checks, fees might be slightly higher, possibly around 3p to 4p per authorisation.

Additional Credit Card Processing Fees

Merchant Service Charges (MSC)

Merchant Service Charges are usually calculated as a percentage of each transaction value, typically ranging between 0.25% and 0.35%. These charges cover the services provided by the payment processor, including transaction handling, fraud prevention, and customer support. The exact rate can vary based on the processor and the specific terms of the merchant agreement.

Example Merchant Service Charges (MSC):

• Standard Transactions: Typically around 0.25% to 0.35% of the transaction value.
• High-Volume Merchants: May receive lower rates, possibly around 0.2% to 0.25% of the transaction value.
• Specialised or High-Risk Transactions: Higher rates may apply, potentially around 0.4% to 0.5% of the transaction value.

Monthly and Annual Fees

Some payment processors impose monthly or annual fees for account maintenance. These can include charges for software usage, access to online reporting tools, or general account services. These fixed fees are particularly important for businesses with lower transaction volumes, as they are payable irrespective of the number of transactions processed.

Example Monthly and Annual Fees:

• Basic Account Maintenance: Monthly fees around £10 to £20, or annual fees in the range of £120 to £240.
• Software Usage: Charges for software or online tools may be around £15 to £30 per month.
• Enhanced Account Services: For more comprehensive services, monthly fees could be £30 to £50, or annual fees approximately £360 to £600.

PCI Compliance Fees

PCI Compliance Fees are charged by some processors to support businesses in adhering to the Payment Card Industry Data Security Standard (PCI DSS). These fees can be structured as a flat rate or a monthly charge and are intended to cover the costs associated with maintaining secure credit card transactions.

Example PCI Compliance Fees:

• Standard PCI Compliance Fee: A flat annual rate typically around £30 to £60.
• Monthly PCI Support: For ongoing support services, fees might be approximately £3 to £5 per month.
• Advanced Compliance Services: For businesses requiring extensive compliance support, fees could be higher, potentially £70 to £100 annually.

Chargeback Fees

When a transaction is disputed by a customer and results in a chargeback, businesses often face chargeback fees. These fees vary but are intended to cover the administrative costs associated with processing and managing chargebacks.

Example Chargeback Fees:

• Standard Chargeback Fee: Typically around £15 to £20 per chargeback.
• High-Risk Industries: In sectors with higher chargeback rates, fees might be higher, potentially £25 to £30 per chargeback.
• Volume Discounts: Businesses with lower chargeback rates or high transaction volumes may negotiate lower fees, possibly around £10 to £15 per chargeback.

Terminal Rental Fees

Businesses that utilise physical card terminals may incur rental or lease fees for this equipment. These fees are typically charged monthly and depend on the type of terminal and the terms set by the provider. Terminal rental fees are an important consideration for businesses that conduct in-person transactions.

Example Terminal Rental Fees:

• Basic Card Terminal: Monthly rental fees typically range from £15 to £25 per terminal.
• Advanced Terminals: For terminals with additional features (like contactless payment), fees might be around £30 to £40 per month.
• High-Volume Businesses: Larger businesses may receive discounted rates, potentially £10 to £20 per terminal per month for bulk rentals.

Comparing Credit Card Processing Fees among Top Providers

If you’re new to this area, it can be incredibly confusing to work out which providers charge what and which functionality is absolutely necessary.

At the entry-level end of the market, providers like Square, Zettle and SumUp focus on fixed, transparent fees with zero or no contracts.

But once you start taking beyond about £5000 per month, getting into a fixed contract will give you access to lower transaction fees overall. We recommend someone like Takepayments at this point for a medium-sized business.

At the higher end, Barclaycard’s Smartpay Anywhere offers some of the best flat-rates for CHIP and contactless payments. We also recommend Lightspeed, who specialise in customisable EPOS solutions for retail or hospitality.

Credit Card Pricing Models Used by Payment Processors

Credit card processors usually offer several pricing models, each with its own set of fees and rate structures.

The most common are:

• Interchange-plus pricing: This model is considered the most transparent, breaking down the costs into interchange fees plus a markup.
• Flat-rate pricing: A simple model where you pay a fixed percentage and/or a fixed fee per transaction. This is what Square, Zettle and SumUp use.
• Tiered pricing: In this model, transactions are grouped into tiers based on certain criteria, with each tier having its own rate.

Why Credit Card Processing Fees Vary for Merchants

Credit card processing fees can vary widely for merchants, and it can be tough to understand why.

Here are some of the key factors that affect credit card processing fees:

• Industry and business type: Businesses in high-risk industries, such as online gambling or pharmaceuticals, may face higher fees due to the increased risk of fraud and chargebacks. On the other hand, businesses with a long-standing history of reliable transactions may be offered more competitive rates.
• Volume and value of transactions: Higher transaction volumes or higher average transaction values often offer the leverage to negotiate lower fees with your payment processor.
• Method of transaction: Card-present transactions, where the card is physically swiped or inserted, generally have lower fees compared to card-not-present transactions, which are considered riskier.
• Merchant account vs. payment service providers: Using a dedicated merchant account usually results in lower processing fees compared to utilizing a third-party payment service provider like PayPal or Square. However, merchant accounts often have additional costs like monthly fees and setup costs that you’ll need to account for.
• Geographical factors: Cross-border transactions or accepting cards issued from foreign banks usually incur additional fees. Even within the same country, regional regulations can lead to variations in rates.
• Type of card used: The kind of credit card used for the transaction can also affect fees. Premium or rewards cards often have higher interchange fees, which, in turn, increases the cost for the merchant.
• Contract terms: The terms of your agreement with the payment processor can introduce variability in your processing fees. Some contracts may offer lower fees but include additional charges for services like customer support or account maintenance.

Cross-Border Fees: A Hidden Cost of Credit Card Transactions

Cross-border fees are additional charges levied on transactions that involve international elements. These fees are typically a percentage of the transaction, and they can add up quickly, especially when combined with other fees like interchange and assessment fees. Credit card networks impose cross-border fees and are non-negotiable.

Several factors can influence the imposition and size of cross-border fees, including:

• Card issuer’s country: Transactions involving cards issued outside your home country will generally attract cross-border fees.
• Currency conversion: If a transaction requires currency conversion, this often incurs an additional fee.
• Network policies: Each credit card network has its own set of rules and fees for cross-border transactions, which can change periodically.

There are a few things you can do to manage the impact of cross-border fees, including:

• Multi-currency processing: Consider adopting a payment processing solution that allows you to accept payments in multiple currencies, thereby eliminating the need for currency conversion in some cases.
• Localized payment methods: Offering local payment options can sometimes circumvent the need for cross-border fees, making your products or services more attractive to international customers.
• Fee monitoring and transparency: Choose a payment processor that provides detailed reporting on cross-border fees, enabling better tracking and accounting.
• Strategic pricing: If a large proportion of your business involves international transactions, consider this when developing your pricing strategy to offset the additional costs.

Strategies for Reducing Your Credit Card Processing Fees

Credit card processing fees can eat into your profits, but there are steps you can take to reduce them.

This section outlines key strategies you can use to save money on credit card processing without sacrificing quality or service.

Negotiating Lower Rates with Processors

One of the best ways to reduce credit card processing fees is to negotiate with your payment processor. You can do this when you’re first signing a contract, or you can renegotiate your existing terms if your business has changed significantly.

Here are some tips for negotiating lower rates with processors:

• Shop around and compare rates from different providers. This will give you a good idea of what’s fair and reasonable.
• Be prepared to walk away. If you’re not getting the deal you want, don’t hesitate to take your business elsewhere.
• Leverage your business metrics. If you have a high transaction volume or a low chargeback rate, you can use this to your advantage in negotiations.

Comparing Rates and Fees Between Providers

Once you’ve negotiated the best possible rates with your processor, it’s important to compare them to the rates and fees offered by other providers. This can help you ensure that you’re getting the best deal possible.

When comparing providers, be sure to consider all of the costs involved, including transaction fees, interchange fees, assessment fees, and equipment costs.

Reviewing Contract Terms Impacting Fees

Before you sign a contract with a payment processor, be sure to read it carefully and understand all of the terms and conditions. This includes the fees you’ll be charged, as well as any early termination fees or other potential costs.

Credit Card Processing Fee FAQs