A guide to credit card merchant fees

Taking card payments is essential for most businesses today. But every transaction comes with a cost. Understanding credit card merchant fees helps you make better decisions about payment processing and keeps more money in your business. This guide explains what you're paying for, the different types of fees you'll encounter, and practical strategies to reduce costs.

What are credit card processing fees?

Credit card processing fees are charges you pay every time a customer pays with a card. They cover the cost of moving money from your customer's bank to yours. Multiple parties are involved: the card network (Visa, Mastercard), the customer's bank, and your payment processor. Each one takes a cut.

These fees typically appear as a percentage of the transaction value plus a fixed amount. For example, you might pay 1.5% + 20p on each sale. So a £100 purchase would cost you £1.70 in fees, leaving you with £98.30.

What is the purpose of credit card processing fees?

Processing fees cover the infrastructure and risk involved in card payments. When a customer taps their card, the payment processor checks if the card is valid, confirms funds are available, secures authorisation, and transfers the money to your account. This happens in seconds but requires sophisticated technology and security.

The fees also cover fraud protection and chargeback management. Card networks like Visa and Mastercard set interchange fees, the bulk of what you pay. Your payment processor adds their markup on top.

Types of credit card fees

Understanding the different fee types helps you identify opportunities to reduce costs.

Interchange fees - Set by card networks, these are the biggest components. They vary based on card type and how it's processed. You can't negotiate these directly

Payment processor fees - Your processor adds their own charges on top of interchange fees. This is where competition exists - comparing quotes from multiple processors can save you money

Transaction fees - A flat fee per transaction, typically 10p to 30p

Monthly fees - Some processors charge a fixed monthly fee for account maintenance

Chargeback fees - When a customer disputes a payment, you may face a fee even if you win the dispute, typically £10 to £25

PCI compliance fees - Payment Card Industry security standards sometimes attract separate charges

Average cost of credit card merchant fees in the UK

Merchant fees in the UK typically range from 0.2% to 3.5% per transaction, though this varies based on your business type, transaction volume, and card types you accept.

Debit cards are cheaper to process than credit cards. UK debit transactions often cost between 0.2% and 0.5%, while credit cards range from 1% to 3.5%. Premium rewards cards sit at the higher end because the card issuer pays out rewards - those costs get passed to merchants.

Higher transaction volumes usually mean lower percentage fees. Payment processors offer better rates to higher-volume merchants. Your industry also affects rates - businesses considered higher risk (online retail, subscriptions) pay more than lower-risk sectors.

Cutting the cost of credit card processing fees

You can't eliminate processing fees, but you can reduce them with smart strategies.

Compare multiple processors - Get quotes from several providers. Rates and fee structures vary widely, and competition works in your favour

Choose the right pricing model - Interchange-plus pricing is usually more transparent and cost-effective than blended or tiered pricing

Encourage debit card payments - Debit transactions cost less than credit

Process transactions correctly - Chip and PIN or contactless costs less than manually keying in card details

Avoid chargebacks - Each chargeback comes with fees. Clear product descriptions, good customer service, and prompt delivery help prevent disputes

Consider reviewing your statements - Many businesses pay fees they don't understand. Monthly statement reviews can help spot unnecessary charges

Understanding business credit cards helps you see the full picture of payment costs. The difference between charge cards and business credit cards also matters for managing your own costs.

FAQs

Are processing fees lower for debit cards?

Yes, debit card processing fees are lower than credit card fees. UK debit transactions typically cost 0.2% to 0.5%, while credit cards range from 1% to 3.5%. This is because debit cards have lower interchange fees set by card networks

Can I pass processing fees onto the customer?

As of January 2018, businesses in the UK cannot add surcharges for card payments. The Payment Services Regulations banned this practice. You must absorb processing fees as a business cost

What affects a processing fee?

Several factors affect your fees: transaction volume (higher volume usually means lower rates), card type (debit is cheaper than credit), processing method (chip and PIN costs less than manual entry), your industry risk level, and your payment processor's pricing structure

Turn merchant fees into cashback

Card payments are part of running a modern business, and while you can't eliminate processing fees, you can offset some of the cost.

The Funding Circle Cashback business credit card helps you earn money back every time you spend on business expenses. Every business purchase you make earns cashback, turning your own spending into revenue.

Earn 2% cashback for your first 6 months (up to £2,000 in cashback), then continue earning 1% uncapped cashback on everything you spend. Use it for stock purchases, equipment, software, marketing, or any business expense.

No annual fee. The cashback you earn stays in your pocket, not eaten up by card fees.

If you're already paying merchant fees when customers pay you, earning 2% back on your own business spending helps balance the books. This means, if your team spends £50,000 in the first six months, you could earn over £1,000 back..

Over 110,000 UK businesses trust Funding Circle to back their goals.

Discover the Funding Circle cashback card.