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Credit card processing fees explained for UK merchants (2024)

Stephen Hart

Stephen Hart

Founder - Cardswitcher

Former - Chief Financial Officer @ Worldpay

Navigating the maze of credit card processing fees can be a major headache for UK merchants.

Why do these fees exist? How much should you be paying? Are there ways to minimise these costs without compromising your service quality?

The confusion surrounding credit card processing fees can feel frustrating, but it doesn’t have to be.

In this guide, we’ll break down everything you need to know about credit card processing fees as a UK merchant in 2024. We’ll explain why they are charged, how much you can expect to pay, how they can vary, and offer tips to help you manage and potentially lower your processing costs.

Our goal is to turn this confusing topic into something straightforward and manageable, so you can focus on what you do best: running your business!

paying by card

 

What are credit card processing fees?

Credit card processing fees are charges that businesses pay to process payments made by customers using credit cards.

These fees are paid to payment processors, such as banks or merchant service providers, to cover the costs of handling transactions securely.

Essentially, they cover the operational costs involved in verifying the transaction, transferring money between banks, and ensuring compliance with security standards like PCI DSS (Payment Card Industry Data Security Standard).

Understanding these fees helps merchants manage their finances effectively while ensuring smooth payment processing for customers.

 

What different credit card processing fees might you pay?

Below is a breakdown of various fees you might encounter when processing card payments. We’ve organised them so you can see if they are always applicable, and if they are applicable to online or in person transactions, or both.

Fee TypeOnline / In Person / BothAlways applicable
Transaction Processing FeeBothYes
Amex Transaction FeesBothYes (if accepting Amex)
Authorisation FeeBothYes
Payment Gateway FeeOnlineYes (for online transactions)
Gateway Click FeeOnlineNo
PCI Compliance FeeBothYes (sometimes it’s charged separately)
Terminal RentalIn PersonYes (when physical card terminals are rented rather than purchased)
Merchant Account FeesBothYes
Service ChargesBothYes
Service FeesBothGenerally applicable
Set up FeesBothNo
ChargebacksBothNo
RefundsBothNo
Minimum Monthly Service FeesBothNo
We can secure fees as low as 0.29%* Compare quotes

Now that we've outlined the common credit card processing fees you may encounter, let's delve into a detailed explanation of each one.

 

Transaction Processing Fee

Definition: A charge imposed on each credit card transaction processed by the payment processor.

Example: If a customer makes a purchase of £100 using a credit card, and the transaction processing fee is 2.5%, the fee would be £2.50. Therefore, the merchant would receive £97.50 from the transaction.

Amex Transaction Fees

Definition: Fees that merchants pay when they accept American Express credit cards from customers.

Example: If a customer makes a purchase of £100 using an American Express card, and the Amex transaction fee is 3%, the fee would be £3. Therefore, the merchant would receive £97 from the transaction.

Authorisation Fees

Definition: A small charge paid by merchants each time a payment processor verifies and approves a credit card transaction.

Example: If a business processes 1,000 transactions in a month, and the authorisation fee is 2p per transaction, the total authorisation fees for that month would be £20.

Payment Gateway Fees

Definition: A fee for using a payment gateway for customers to enter their card details into online.

Example: If the payment processor charges a £20 monthly fee for their payment gateway, the merchant will pay £240 per year to use it.

Gateway Click Fees

Definition: A charge paid by merchants for using a payment gateway to process online transactions securely.

Example: If an online merchant uses a payment gateway and processes 500 transactions a month, with a per-transaction gateway click fee of 5p, the total gateway click fees for the month would be £25, or £300 per year.

PCI Compliance Fees

Definition: A PCI compliance fee is a charge imposed on merchants to ensure they meet the Payment Card Industry Data Security Standards (PCI DSS), which are designed to protect cardholder data and reduce the risk of fraud.

Example: If a merchant pays a PCI compliance fee of £3 per month, the annual cost would be £36. This fee helps the merchant ensure they are meeting all necessary security requirements to protect their customers' payment information.

Terminal Rental

Definition: Terminal rental fees are the costs associated with renting physical card terminals for in-person transactions.

Example: If a merchant rents a countertop terminal for £20 per month and needs two terminals for their business, the total monthly cost would be £40. The annual cost would be £480.

Merchant Account Fees

Definition: Merchant account fees are charges that businesses pay to maintain a merchant account, which is a specific type of bank account that allows them to accept and process credit card transactions.

Example: If a business has a merchant account fee of £10 per month, the annual cost for maintaining the account would be £120.

Service Charges

Definition: Service charges, also known as merchant service charges, are the fees paid by merchants to their acquiring bank for processing card payments.

Example: If a merchant processes a £100 transaction, a service charge of 0.3% would result in a cost of 30p for that transaction.

Service Fees

Definition: Service fees are recurring monthly fees charged by the payment processor or acquiring bank for maintaining the merchant's account and providing services such as customer support, fraud prevention, and access to the payment gateway. 

Example: A merchant might pay a monthly service fee of £12 to cover the ongoing costs of their payment processing services, including customer support and fraud monitoring. This would be an annual cost of £144.

Set up Fees

Definition: One-time charges that businesses incur when establishing a new account with a payment processor or merchant service provider to start accepting credit card payments.

Example: If a business pays a set up fee of £75 to establish their merchant account and integrate it with their POS system, this is a one-time cost that will be incurred at the start of the service.

Chargebacks

Definition: A chargeback is a transaction reversal initiated by the cardholder's bank, where funds are returned to the cardholder due to a dispute regarding a purchase. Chargeback fees are the costs merchants incur when a chargeback occurs. 

Example: If a customer disputes a £50 transaction and the chargeback is upheld, the merchant loses the £50 sale and may be charged a £15 fee. They would receive no refund for the processing fee on the initial £50 sale.

Refunds

Definition: A refund refers to the process where a merchant returns money to a customer, typically in response to a request for a return of goods or services purchased.

Example: If a customer purchases a £100 product and requests a refund, the merchant would initiate a refund of £100. Depending on the payment processor, they may charge a £15 refund processing fee, and the original transaction fee (e.g. 2.5% of £100 = £2.50) may not be refunded.

Minimum Monthly Service Fees

Definition: A fixed charge imposed by payment processors or merchant service providers on merchants, ensuring a minimum revenue threshold each month regardless of transaction volume.

Example: If a merchant's agreement includes a minimum monthly fee of £15 and they process transactions that generate only £5 in fees one month, they would still be required to pay the £15 minimum fee, resulting in a total payment of £15 for that month.

woman holding many credit cards
 

What are the typical costs for credit card processing?

Here's a snapshot of the average fees (if the fee is charged) that you might encounter.

Fee TypeAverage Cost
Transaction Processing Fee1.5% - 3.5% per transaction
Amex Transaction Fees4% - 5% per transaction
Authorisation Fee1p - 3p per transaction
Payment Gateway Fee£0 - £25 per month
Gateway Click Fee0p - 5p per transaction
PCI Compliance Fee£2.50 - £5 per month
Terminal Rental£19 - £29 per month
Merchant Account Fees£5 - £15 per month
Service Charges0.2% - 0.3% per transaction
Service Fees£10 - £15 per month
Setup FeesUp to £100 (one-time)
Chargebacks£10 - £20 per incident
Refunds£10 - £20 per incident
Minimum Monthly Service Fees£10 - £20 per month
We can secure fees as low as 0.29%* Compare quotes

These costs are averages and can vary based on the provider, the specific service package chosen, and the volume of transactions processed by the business.

 

Comparing Costs: Credit Card Processing Providers

Explore the costs associated with different credit card processing providers. Here’s a breakdown of transaction fees, monthly charges, and card machine costs to help you choose the right service for your business needs.

ProviderTransaction FeeMonthly FeeCard Machine Cost
SumUp Air1.69 - 2.5% per transaction£0£39 + VAT
Square1.75 - 2.5% per transaction£0£19 + VAT
Zettle by PayPal1.75 - 2.5% per transaction£0£29 + VAT
Worldpay Reader1.5% per transaction£49.99Included in Monthly Fee
Shopify WisePad 31.7% per transaction£0£49 + VAT
Barclaycard Smartpay1.6% per transaction£0£29 + VAT
PayPal Here2.75% per transaction£0£45 + VAT
TakePayments Card ReaderBespokeBespokeBespoke
Tide Reader1.5% per transaction£0£49 + VAT
Dojo Go1.0% per transaction£20£15 (rental)
We can secure fees as low as 0.29%* Compare quotes

By comparing these typical costs, merchants can make informed decisions on which payment processor best fits their financial and operational needs.

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Can I pass on the processing costs to my customers?

No, you cannot pass on credit card processing fees directly to your customers.

In the UK, this practice was prohibited by the Government in January 2018 under the EU's Payment Services Directive (PSD2). This regulation bans businesses from adding a surcharge to payments made by credit or debit cards.

 

How can I reduce my card processing costs?

Reducing card processing costs is essential for businesses looking to maximise profits. Here are some effective strategies that your business could use to reduce your card processing costs:

  • Assess Your Needs: Review your transaction volumes and payment methods to avoid paying for unnecessary features.
  • Negotiate Fees: Don’t hesitate to negotiate lower rates with your payment processor based on your business's transaction volume and history.
  • Compare Providers: Use online tools like Cardswitcher to compare fees and find the best rates and service terms for your business.
  • Encourage Cost-effective Payments: Promote lower-fee payment methods like debit cards or direct bank transfers.
  • Monitor and Adjust: Regularly analyse transaction data to identify savings opportunities and adjust strategies accordingly.
 

FAQs

Here are answers to common questions about credit card processing fees to help you better understand the costs and considerations involved in accepting card payments.

What are interchange fees in credit card processing?

Interchange fees are charges between banks for processing card transactions. They vary based on card type, transaction amount, and industry.

How are credit card processing fees calculated?

Fees are calculated as a percentage of the transaction plus a flat fee. Components include interchange fees set by card networks and markups by processors.

Are there ways to avoid credit card processing fees?

It's difficult to avoid entirely, but negotiate lower rates, promote lower-fee methods like debit cards, and explore flat-rate pricing options.

What is the average processing time for credit card transactions?

Transactions typically process within seconds to minutes, depending on network traffic and verification requirements.

Can I dispute credit card processing fees?

Yes, merchants can dispute fees for errors or unauthorised charges by contacting their payment processor or acquiring bank promptly with supporting documentation.

 

Conclusion

For expert guidance on managing your credit card processing fees efficiently, consider using CardSwitcher. Discover how you can optimise your payment solutions to save on costs and enhance your business operations. Click the link below to get started.

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Written by:
Stephen Hart

Stephen Hart

Founder - Cardswitcher

Former - Chief Financial Officer @ Worldpay

Stephen brings a wealth of experience honed through years in the financial sector, particularly in the card processing payments industry. His illustrious career spans key roles at PwC, Natwest, and the role of CFO at WorldPay, before going on to found card processing comparison site, CardSwitcher. He is passionate about helping growing businesses to understand the card processing landscape so they can make savvy financial decisions.