Guide to credit card processing fees for small businesses

Card payments have become the standard for everyday transactions, offering speed and convenience for customers. But for businesses, every swipe, tap, or online payment comes with a cost. This guide breaks down the fees involved when customers pay by card and explores practical strategies to help you cut down on credit card processing costs.

Processing fees cover all the costs associated with payment transactions. Credit card issuers, scheme providers such as Visa and Mastercard, and merchant platforms such as PayPal or Amazon Pay all impose these charges.

What are the different types of card processing fees?

Given the number of different providers imposing card processing fees, there’s a long list of potential charges. Here are the main ones to look out for:

Merchant service charge – In the UK, fees on personal credit card transactions are generally lower — often under 1% — while fees on business credit cards are typically higher, sometimes between 1.5% and 2.5% or more depending on the provider. The exact charge depends on the type of credit card the customer uses, such as a reward or premium card, and the interchange fee the business’s bank pays the customer’s bank for each transaction 

Gateway fee – This targets businesses that take payment online. The fee is usually 6p to 10p per transaction, or from £10 a month, with the cost dependent on the number of transactions. For example, it may cost £10 for up to 1,000 transactions

Terminal rentals – Businesses that take payments in person, either at their premises or on the road, use a device to allow card payments. They rent these for a monthly fee, which differs depending on the contract length and the provider. Monthly costs typically range from £16 to £25 a month for portable units, £20 to £35 for mobile apps on a phone, and £14 to £20 for fixed countertop devices. Per-transaction fees sometimes apply instead of monthly fees – for example, 0.9% plus 5p per transaction

Authorisation charge – This covers the cost of checking that credit card transactions are legitimate. Costs vary, depending on the number of transactions covered. For example, you may pay 2p for up to 1,000 transactions a month, or up to £20 a month

PCI compliance fee – Imposed to ensure all credit card transactions comply with the Payment Card Industry Data Security Standard (PCI DSS), which protects card users’ information. The cost to businesses is £10 a month on average, but can range from £2 to more than £20 per month, depending on the volume of transactions

Other possible fees

In addition to these standard charges, you could face other fees, including: 

• Monthly service fees – If your transaction charges fall below a certain amount each month, you may incur a small fee.

• Set-up fees – You may have to pay a fee of up to £100 to be in a position to take card payments. It’s rare, but worth checking the small print 

• Chargeback fee – If a customer’s chargeback claim is upheld, they get a full refund. The processing fee is still applied, and the business may also face a chargeback admin fee

• Payment platform fee – If you use a payment platform, you pay a fee for those companies to process retail transactions. This can be from 0.6% to 1.6% with Amazon Pay and 1.5% plus 20p with Stripe, for example

What affects card processing fees?

The amount you pay depends on several factors, the main ones being:

• Contract – Charges differ between payment processors and the type of contract. For example, some offer tiered rates, others flat-rate fees

• Card type – Some credit cards, such as premium, cashback or reward cards, attract higher processing fees, because of the increased admin involved

• Cross-border payments – Transactions made between the UK and other nations usually attract higher processing fees, including currency conversion charges

• Payment method – Person-to-person transactions are typically cheaper than card-not-present (CNP) ones, because there is a lower risk of fraud 

• Fraud risk – Businesses operating in a sector that’s considered vulnerable to fraud, such as entertainment, IT or travel, may pay more in fees to cover anti-fraud measures

• Chargeback – Credit card issuers need to spend time and resources investigating chargeback claims for purchase disputes. Businesses in high-risk sectors typically pay more, as do companies with a history of making multiple chargeback claims

• Negotiation skills – While certain fees are non-negotiable, others may be reduced for loyal customers or companies bringing in higher-value or more frequent sales

How can I cut the cost of card processing fees?

Aside from shopping around for the most cost-effective solutions, there’s little you can do to limit card processing payments. You’re at the mercy of your customers – if they use a credit card, you pay fees. 

That said, it is worth negotiating certain charges, such as merchant service fees, if you have a high volume of credit-card-using customers. Also, be sure to scrutinise the small print before signing up with a payment terminal provider to ensure there are no hidden costs. 

Depending on your business, it may be worth highlighting a preference for cash or even debit card payments, because the latter charge lower processing fees. For example, debit cards attract a merchant service charge of 0.25% to 0.6% rather than the 0.3% to 0.9% with credit cards.

You could include this polite request on menus, on your website, or at the point of sale. This may be particularly effective for certain types of businesses, such as restaurants, cafes, newsagents and hairdressers. 

Likewise, setting a minimum card transaction limit, such as £5, isn’t illegal and may help you avoid card fees. But this is probably only useful if a sizable number of your business transactions are below this amount. Bear in mind that Mastercard and Visa frown upon minimum limits and can impose sanctions.

Can I pass on credit card processing fees to my customers?

It is illegal to pass on card processing fees to customers in the form of surcharges. The cost of all items or services must be the same for cash and card-paying customers.

Read more …

• Find the best card machine for your business

• How to accept card payments

• What is a merchant account?