What Is a Merchant Account? A Plain-English Guide for UK Businesses

A merchant account lets your business accept card payments. It holds each card payment temporarily before the money moves to your business bank account.

Most small UK businesses never see this layer directly. Payment service providers like Square and SumUp manage it on your behalf.

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What is a merchant account and how does it work?

A card payment moves through several checks before the sale is complete. The card details go to Visa or Mastercard, the network checks the available funds, and an approved payment is reserved in the merchant account.

How fast the money then reaches your bank depends on the provider. Square pays out the next day, weekends and holidays included, and SumUp pays by 7am the next day into a SumUp Business Account. Stripe settles on a three-business-day cycle once a new account’s first payout, held for seven days, has cleared.

A traditional merchant account takes more work to open. You apply separately to an acquiring bank such as Worldpay, Barclays, or NatWest, which underwrites the business and approves the account. It then charges a monthly fee and a rate on each transaction, and setup can take weeks.

Merchant account vs payment service provider: what is the difference?

A payment service provider (PSP) such as Square, SumUp, or Stripe removes the need to open a separate account with an acquiring bank. It pools businesses under its own acquiring relationship and gives you access to that arrangement. In exchange:

• Sign-up is instant, often under five minutes
• No underwriting or credit checks in most cases
• Flat transaction rates (no interchange-plus complexity)
• The PSP can suspend or terminate your account if you breach their terms

A dedicated account may give you more control and lower rates as your card volume grows, along with a direct commercial relationship with the acquirer. You pay for that with a longer setup process and a contractual commitment.

Do I need a merchant account?

Most small UK businesses do not need a dedicated merchant account. A PSP handles the same payment layer with less setup, whether you are a sole trader or run a limited company in hospitality, retail, or professional services. Your card volume and business type should decide which provider makes the shortlist.

A dedicated merchant account is worth considering if you process £200,000+ per year in card sales, operate in a sector that PSPs flag as high-risk, or need contractual rate guarantees over 12–36 months.

Merchant account providers

Square Reader

Top Pick

Top Pick

Square Reader

The right reader for any business that cannot honestly forecast its card volume a year out.

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Overview Account Details Eligibility Pros & Cons Key Features

Best for: Small businesses wanting a free POS app and no monthly fees

Watch out: The standard 1.75% rate can become expensive as volume grows, though Square offers potential custom pricing above £200,000 annual card sales

Not ideal if: High-volume sellers who would benefit from Dojo or other negotiated per-transaction rates

Transaction fee1.75% UK cards (incl. Amex); +1.5% on non-UK cards

Monthly feeNone

Hardware cost£19 +VAT

SettlementNext day, weekends included (free); instant 1.5%

ContractNo lock-in

Amex acceptedYes: same 1.75% rate

Eligibility: UK businesses: sole traders, partnerships, and limited companies. Account holders must be 18 or over. Custom rates available for businesses processing over £200,000 annually. Prohibited categories include firearms and other restricted activities: see Square’s Acceptable Use Policy.

Not ideal if: High-volume sellers who would benefit from Dojo or other negotiated per-transaction rates

Watch out: The standard 1.75% rate can become expensive as volume grows, though Square offers potential custom pricing above £200,000 annual card sales

No monthly fee and no contract, so the commitment is low if you want to test card acceptance

Free POS app usable from day one; online signup and setup are designed to be quick

Amex accepted at the same 1.75% rate: no surcharge or separate policy needed

Software ecosystem (online store, invoices, appointments) on the same account, no extra fees

1.75% flat can get expensive as volume grows, though custom pricing is offered above £200,000 annual card sales

Standard settlement is next day, weekends and holidays included, at no cost; only an instant transfer costs 1.5%

Bluetooth-to-phone means a flat battery or dropped app stops checkout

Square POS free plan: inventory, CRM, analytics and team management included from day one

Offline mode: Square Reader and Stand take payments for up to 24 hours without internet; every device must upload them within 72 hours

Hardware range from £19 Reader to £699 Register: scalable as the business grows

Payment links, invoices and online store included: all feed into the same Square account

SumUp Solo Lite

Best for Startups

Best for Startups

SumUp Solo Lite

The right reader for a sole trader who wants the lowest-commitment start: owned hardware from £25 ex VAT and no monthly fee.

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Overview Account Details Eligibility Pros & Cons Key Features

Best for: Sole traders and startups wanting the lowest hardware entry cost

Watch out: Solo Lite has no connection of its own. It pairs to your phone over Bluetooth and depends on that phone’s battery and signal.

Not ideal if: Businesses taking a meaningful share of American Express, corporate or international cards, which stay at 1.69% on both plans

Transaction fee0.00% with a SumUp card, 1.69% other cards in person (0.99% on Payments Plus)

Monthly fee£0 or £19/month (Payments Plus)

Hardware cost£25

SettlementNext day by 7am to a SumUp Business Account; 1 to 3 business days to a bank

ContractNo contract

Amex acceptedYes, in-person only, at the standard flat rate

Not ideal if: Businesses taking a meaningful share of American Express, corporate or international cards, which stay at 1.69% on both plans

Watch out: Solo Lite has no connection of its own. It pairs to your phone over Bluetooth and depends on that phone’s battery and signal.

£25 ex VAT hardware is one of the lowest entry points on the market, owned outright

In-person payments made with a SumUp card cost 0.00% on both plans

Payments Plus at 0.99% is a credible upgrade path once most takings are UK debit and credit cards

Amex accepted in person at the standard 1.69% rate, with no separate premium-card policy

No connectivity of its own; it depends on a paired phone’s battery and signal

The 0.99% Payments Plus rate does not apply to Amex, premium or international cards

Break-even on Payments Plus depends on card mix, so the plan is wrong for many small users

Online and payment-link transactions cost 2.5%, well above the in-person rate

SumUp Solo Lite reader at £25 ex VAT (formerly branded SumUp Air), pairs with the free SumUp app on iOS and Android

Free SumUp app with sales reports, item library, invoicing and payment links, with no subscription

Payouts by 7am the next day to a SumUp Business Account including weekends, or 1 to 3 business days to an external bank

Payments Plus at £19/month drops UK debit and credit cards accepted in person to 0.99%

Accepts major debit and credit cards including Amex in person at the standard rate; online and payment-link transactions cost 2.5%

Stripe Terminal

Stripe Terminal

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Overview Account Details Eligibility Pros & Cons Key Features

Best for: Tech-forward businesses that already use Stripe online and want a unified payment stack

Transaction fee1.4% + 10p (EEA cards, in-person)

Monthly feeNone

Hardware costWisePad 3: £49 +VAT; S700/S710: £229 +VAT

Settlement3 business days standard (instant payout: 1%, min 40p)

ContractNo contract

Amex acceptedYes

Eligibility:

• UK-registered businesses: sole trader, Ltd, LLP, charity, or partnership
• UK bank account in the business name required for payouts
• No minimum trading history or revenue threshold for standard accounts
• High-volume merchants moved to Stripe Custom with bespoke underwriting
• Restricted categories: adult content, regulated gambling, firearms, MLM, unregulated CBD, and any business on the FCA restricted activities list
• Stripe Capital is offered to selected businesses based on payment volume and history on Stripe

1.4% + 10p for EEA card-present transactions, competitive without a monthly commitment

Unified dashboard: online and in-person payments in one place with consolidated reporting

Radar Lite fraud detection included, no extra fee (full Radar from £8/month)

No monthly fee and no contract, suits variable or seasonal transaction volumes

Tap to Pay on iPhone and Android eliminates the need for dedicated hardware

Custom Terminal integration requires SDK development, not a no-code out-of-box setup

2.9% + 10p for non-EEA cards, expensive for businesses with international customers

Standard settlement takes 3 business days; instant payout costs 1% (minimum 40p)

New accounts face a 7-day holding period before first payout

Account holds can freeze both online and in-person payment channels simultaneously

Unified in-person and online payment dashboard with consolidated reporting

Radar Lite fraud detection included at no extra cost

Tap to Pay on iPhone and Android, no dedicated hardware needed

SDK integration (Android, iOS, JS, React Native) for custom POS builds

Merchant account fees explained

Your total cost can include much more than the percentage taken from each sale. Hardware, monthly charges, authorisation fees, and refund fees can all affect what you pay:

• Transaction rate: a percentage of each card payment. On the published UK plans this page covers, in-person rates run from 0.69% + 3p (Tide Premium) to 1.75% (Square).
• Monthly fee: £0 on Square and on SumUp pay-as-you-go; £19 on SumUp Payments Plus and £17.99 to £19.99 on Tide’s card reader plans. Traditional acquirers set the monthly fee in each contract.
• Hardware: £25 for a SumUp Solo Lite up to £149 for a Square Terminal. Traditional acquirers rent terminals; PSPs sell them outright.
• Authorisation fees: some acquirers charge a fee for each attempted transaction, set in the contract. Square and SumUp publish no such fee on their pay-as-you-go plans.
• Refund fees: some acquirers charge a fee for each refund under their contract.

Which merchant account or PSP is right for my business?

A PSP is usually the quickest and most cost-effective route for a business taking its first card payment. The amount you process each month then decides which plan or provider is likely to fit:

• Under £2,000/month: SumUp Solo Lite at 1.69% PAYG, £25 reader, no monthly fee.
• £2,000–£5,000/month: SumUp Payments Plus at 0.99% (£19/month) or Tide Card Reader Essential at 0.89% + 3p (£17.99/month); Premium charges 0.69% + 3p at £19.99/month on a 12-month contract.
• Above £5,000/month: Tide Sell In-Person Essential or Premium on its 12-month contract, or a custom quote from Dojo, TakePayments, or Worldpay.

Frequently asked questions