Understanding Rates for Credit Card Processing: A Comprehensive Guide

For businesses in the UK, accepting credit card payments is essential for staying competitive and catering to customer preferences. However, navigating the complex world of credit card processing fees can be daunting. From interchange fees to monthly fees, understanding these costs is crucial for small businesses looking to save money while accepting card payments.

This guide breaks down the different rates for credit card processing, explains common merchant service fees, and provides tips on reducing credit card processing costs.

How Credit Card Processing Works

Before diving into fees, it’s important to understand how credit card transactions work. When a customer makes a purchase using their customer’s credit card, several parties are involved:

1. Card Issuer (Bank that issued the card)

2. Merchant Account Providers (Facilitate transactions)

3. Payment Processor (Handles transaction approval)

4. Card Networks (Visa, Mastercard, etc.)

Each party charges a fee, contributing to the overall payment processing fees.

Types of Credit Card Processing Fees

1. Interchange Fees

Interchange fees are set by card networks (Visa, Mastercard) and paid to the card issuer. These fees vary based on:

• Card type (debit cards vs. credit card)

• Transaction method (in-person, online, or keyed-in)

• Business industry

For example, debit card transactions typically have lower fees, while premium credit cards may have higher interchange fees.

2. Scheme Fees

Scheme fees are charged by card networks for using their payment infrastructure. These are usually a small percentage of each transaction.

3. Payment Processor Fees

Your payment processing provider charges fees for facilitating transactions. These may include:

• Per transaction fees (fixed or percentage-based)

• Flat fee per transaction (e.g., 10p + 1.5%)

• Monthly fees (for account maintenance)

4. Merchant Account Fees

If you use a merchant account, you may encounter:

• Minimum monthly service charge (if transactions are below a threshold)

• Monthly service fees (for account upkeep)

• Authorisation fee (charged per transaction attempt)

5. Payment Gateway Fees

For online payments, a payment gateway connects your website to the payment processor. Fees may include:

• Setup fees

• Monthly payment gateway fees

• Per transaction fees

6. Assessment Fees

These are charged by card networks (Visa, Mastercard) and are typically a small percentage of transaction volume.

7. Chargeback Fees

If a customer disputes a transaction, you may incur a chargeback fee, often between £10-£20 per dispute.

8. PCI Compliance Fees

To ensure secure card payments, businesses must adhere to PCI DSS standards. Some providers charge PCI compliance fees for security audits.

9. Hidden Fees

Some merchant service providers include less transparent charges, such as:

• Currency conversion fees (for international transactions)

• Early termination fees (if you switch providers)

• Batch settlement fees (for processing daily transactions)

How Much Do Credit Card Processing Fees Cost in the UK?

The total credit card processing costs depend on several factors:

For example, a £100 credit card transaction might incur:

• Interchange fee: £1.50

• Scheme fee: £0.20

• Processor fee: £0.30 + 1.5% = £1.80

• Total cost: ~£3.50 (3.5%)

How to Reduce Credit Card Processing Fees

1. Negotiate with Merchant Service Providers

Some merchant account providers offer flexible pricing. If you process high volumes, you may secure lower fees.

2. Choose the Right Pricing Model

• Flat-rate pricing: Simple (e.g., 1.75% per transaction), best for small businesses.

• Interchange-plus pricing: More transparent (interchange fee + fixed markup).

• Tiered pricing: Varies by transaction type (risk of hidden fees).

3. Encourage Debit Card or Cash Transactions

Since debit card transactions have lower interchange fees, offering discounts for debit or cash transactions can reduce costs.

4. Use a Free Payment Processor (Where Possible)

Some providers offer free payment processors for low-volume businesses, though they may have higher per transaction fees.

5. Avoid Chargebacks

Clear refund policies and good customer service reduce disputes and chargeback fees.

6. Batch Transactions Daily

Delaying settlements can lead to additional fees—process transactions daily to avoid extra costs.

7. Compare Merchant Service Providers

Different merchant service charge structures exist—compare providers to find the best rates.

Choosing the Right Payment Processing Provider

When selecting a payment processing provider, consider:

• Transparency (avoid hidden fees)

• Contract terms (look for no long-term lock-ins)

• Customer support (24/7 assistance for issues)

• Integration (compatibility with your POS or eCommerce platform)

Popular UK providers include:

• Stripe (Good for online payments)

• Square (Simple flat fee pricing)

• Worldpay (Large-scale merchant account solutions)

• PayPal (Easy payment links but higher fees)

Final Thoughts

Understanding rates for credit card processing helps businesses optimise costs while taking credit card payments. By comparing merchant service fees, negotiating with providers, and encouraging lower fees payment methods, businesses can save money on payment processing.

Whether you’re a small business or a growing enterprise, selecting the right payment processing provider and fee structure ensures smooth card transactions without unnecessary expenses.

By staying informed about credit card merchant fees, scheme fees, and processing fees lower alternatives, UK businesses can maximise profits while offering seamless customer payments.

Would you like help finding the best merchant account providers for your business? Compare quotes today to secure the most cost-effective solution!