Breakdown of Card Processing Charges

Breakdown of Card Processing Charges

When you obtain a quote from a merchant service supplier, you will frequently only be quoted on a few basic items, including terminal hire, debit card transaction fees and credit card transaction fees.

For most merchants, those three costs will form the bulk of their monthly invoice but they are not the only costs a supplier can charge. In this blog, I’ll outline several additional charges and let you know what you should be keeping an eye out for.


#1 Merchant Service Charge

The pricing for transactions or card acceptance that merchants negotiate with their acquirer is known as their merchant service charge (MSC). [The UK Card Association]

How much is it typically?

Unless you are a low volume merchant, this item will form the bulk of your cost. The rate for chip & pin personal debit card transactions ranges from 11p per transaction to 28p per transaction, averaging between 13p and 16p.

Chip and pin personal credit ranges from 1.1% to 2.5% of the transaction value, averaging between 1.3% to 1.5%.

Exactly how much you pay will depend on your card turnover. If you are new to cards, rates could be higher.

What to watch for

Suppliers usually only quote face-to-face transaction rates for personal cards, which are the cheapest transactions out there.

Cardholder-not-present (CNP) transactions incur significantly higher rates. So, if you accept payments online or over the phone, you will pay significantly higher rates.

Similarly, the rates for corporate cards, purchasing cards, fleet cards and Mastercard World and Insignia cards (known as “premium cards”) are also higher.

Make sure you are quoted both the CNP and premium card rates (also called non-qualifying rates) if you expect to accept these payment methods.

Suppliers will often hide the non-qualifying rates within your statement as a premium charge, which makes it difficult to calculate your overall rate.


#2 Terminal Hire

A terminal is a device that a merchant uses to place a cardholder’s card into and transmit its details, including any PIN authentication, to an acquirer for authorisation and receive the acquirer’s reply. [The UK Card Association]

Merchants must pay a fee to rent a chip and pin terminal. Note, this charge is only applicable for merchants processing face-to-face and MOTO transactions.

How much is it typically?

For a static counter-top terminal, rates typically range from £10 to £22 per month, averaging around £15.

Bluetooth terminals and mobile terminals will be more expensive.

What to watch for

Terminal rental agreements tend to carry pretty long minimum term and pretty high early termination costs. A three or four-year rental term is typical but suppliers will often offer you a longer term for a lower price or may allow a shorter term for a higher price.

Early termination costs are usually the terminal rental costs for the remaining minimum contract term. Sometimes the supplier will apply a discount but they are just as likely to tack on an additional fee, too. The additional fee is usually labeled as a re-stocking fee.


#3 Payment Gateway Fee

A payment gateway is a merchant service provided by an e-commerce application service provider that authorizes credit card or direct payments processing for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar. [Wikipedia]

A payment gateway is a little like the online version of a physical card terminal. And just like physical card terminals, you have to pay some sort of rental charge. It is quite common for a merchant to receive payment gateway services from someone other than their merchant account supplier.

How much is it typically?

Payment gateway fees are typically quoted calculated on a per transaction basis. Most current deals in the market will offer a maximum number of transactions for a fixed fee.

For example, a £20 monthly fee might limit you to 300 transactions per month.

Once you exceed the transaction limits, you are charged at a higher rate, usually around 10p per transaction.

What to watch for

Most payment gateways will integrate easily into all internet merchant accounts so you can shop around and get the best rates on a payment gateway and an internet merchant independent of each other.

Your payment gateway supplier just needs your internet merchant account details in order to integrate. Your payment gateway supplier will also have deals with all major internet merchant account suppliers, so if you don’t have an internet merchant account they will happily set it up but the transaction rates will be significantly higher than if you did source the two products independently.


#4 Authorisation Fees

Some suppliers, though not all, will charge an additional fee for every authorisation on every transaction (both debit and credit). [Stephen Hart]

How much is it typically?

For those suppliers who do charge, typical fees are around about 3p per authorisation.

Given typical debit card transaction costs are between 13p and 16p per transaction, this additional charge adds around 20% to the cost of debt transactions! Definitely not a good deal, if you ask me.

What to watch for

Make sure you ask whether authorisations are an additional charge or included in the rates you are quoted.


#5 PCI Compliance Fees

A Payment Card Industry Data Security Standard (PCI DSS) charge is effectively an administration charge.

PCI is a hot topic and it’s centres on the security of the environment in which you take cards. (For more information, see our blog A brief guide to PCI DSS compliance.)

PCI requirements are industry-wide and whilst the requirements themselves have been around for several years, the charges are relatively new.

How much is it typically?

If you certify through your supplier, they will arrange the certification for you, although you will still need to fill in the forms.

PCI compliance typically costs between £30 and £50 per year. If you arrange your certification yourself with a third party, it may well be cheaper.

If you do not achieve PCI compliance, you will charge be charged a higher non-compliance fee. How much this fee is will vary between suppliers.

What to watch for

In addition to the chip & pin PCI compliance fee, some suppliers will also charge a separate fee for online PCI compliance

If you accept both online and face-to-face payments, be sure to enquiry about both charges.

Charging for PCI compliance is clearly a revenue opportunity for suppliers as their costs are lower than the charge.  Not all suppliers currently charge for PCI compliance but the common wisdom is those that don’t will do so in the near future.

Certifying compliance is straightforward so make sure you do this quickly to avoid the higher charges for non-compliance. Once you are certified as compliant for the year, you will not need to pay a second charge if you switch suppliers during the year, just show your compliance certificate to your new supplier.


#6 Minimum Monthly Service Charge

A minimum fee applied by an acquirer for processing a merchant’s card transactions. [The UK Card Association]

Suppliers will benchmark profitability of merchants and there is a cutoff point, below which a merchant is unprofitable. If a merchant falls below this level, a supplier probably doesn’t want their business as they are costing them money.

The MMSC is designed to ensure that all merchants deliver profit above a minimum threshold.

How much is it typically?

The Minimum Monthly Service Charge (MMSC) is very difficult to nail down but typically sit between £20 and £25 per month.

Occasionally, rates will drop as low as £5 or £10 and rise as high as £30. Some of our partners do not charge MMSC, at all.

If your monthly transaction charges are higher than the MMSC, your supplier will not add any additional charge. If your transaction charges fall below the threshold, your supplier will add additional charges to bring your monthly bill up to the MMSC.

What to watch for

While most suppliers will have an MMSC, most merchants will never see it because their volumes are above the lower threshold.

I recommend you do your own sums and work out whether your business will be liable for an MMSC then shop around for the lowest level.Alternatively, consider whether chip & pin acceptance is the most cost effective way of card acceptance for your business.  Remember, as you will also have terminal hire, your minimum monthly cost will be c.£35.  If your transaction volume is low it may be that you should explore alternative means of payment acceptance such as PayPal or smartphone card readers.  These are relatively new to

Alternatively, consider whether chip & pin acceptance is the most cost effective way of card acceptance for your business. You will also have terminal hire so your minimum monthly cost will be around £35. If your transaction volume is low, you might be better off exploring alternative means of payment acceptance like PayPal or smartphone card readers. These are relatively new to the market and whilst they have a high cost per transaction, they have low fixed costs and suit low volume merchants.


#7 Set Up Fees

A fixed fee for new merchant facilities.

In all honesty, this is just an arbitrary fee that some suppliers choose to charge. The justification — rightly or wrongly — being it covers the cost and time it takes to processing your application.

How much is it typically?

Set up fees typically cost between £75 and £200. The good news is that most suppliers will not charge a set-up fee because the market is too competitive.

What to watch for

We’ve found that this is the easiest fee to negotiate away. Most suppliers will waive their set up fees if you’re prepared to haggle.


#8 Chargeback Fees

A fixed administration fee per chargeback which will vary per supplier.

Chargebacks are essentially disputed transactions between a customer and a merchant. If the chargeback is successful, the transaction is reversed and the customer has the money returned to his or her account.

How much is it typically?

Merchants are typically charged about £15 per chargeback. We’ve seen some suppliers try to charge £50 but they will usually reduce the fee on negotiation.

What to watch for

This is a standard fee and there’s not really much to look out for.


#9 Annual Admin Charge

A fee charged by some card issuers to cover costs incurred maintaining an account and supplementary services. [The UK Card Association]

Some suppliers may charge an ongoing annual fee for general admin work like account maintenance.

How much is it typically?

Anual admin charges are usually pretty ignorable fees of under £5 per month.

What to watch for

Most suppliers do not charge an annual admin charge.  Of those that do, we recommend you try and negotiate the charge down. Most suppliers will if you kick up a fuss.


Don’t forget to compare!

So, now you know all about what your paying. All you need to do now is find the provider with the lowest overall fees.

Simple, right?

Well, with Cardswitcher it actually is! Jump over to our card processing comparison engine and discover what the market is actually prepared to offer you.

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