Compare Merchant Account Fees: A 2024 Guide for UK Businesses

Opening a merchant account is key to accepting credit and debit cards at your business. However, merchant account pricing can be expensive, and it’s easy to be confused by the long list of card processing fees that appear on your merchant account statement each month. If you don’t know what each fee is for, you could end up overpaying and missing out on revenue.

In this comprehensive guide, we’ll explain all the different fees that merchant account providers charge and compare merchant account fees across popular UK providers.

Key Takeaways

• Merchant account fees include all of the charges that appear on your merchant account statement, such as credit card processing fees, scheduled monthly fees, and one-time incidental fees.
• Credit card processing fees include interchange fees charged by your customer’s card issuer, assessment fees charged by the card network, and processor fees charged by your merchant account provider.
• Scheduled fees include monthly account fees and PCI compliance fees, while one-time incidental fees include setup fees and chargeback fees.
• When selecting a merchant account provider, you must choose between interchange-plus, tiered, and flat-rate pricing. Interchange-plus pricing usually offers the lowest transaction processing rate.

What Are Merchant Account Fees?

Merchant account fees include all the charges that appear on your merchant account statement. There are a few types of merchant account fees, including credit card processing fees, monthly scheduled charges (like monthly account fees), and incidental fees (like chargeback fees).

We’ll dive into each of these fee categories in detail so you can fully understand what you’re being charged for.

Credit Card Processing Fees

You pay credit card processing fees on every credit and debit card transaction. They’re usually structured as a percentage of each transaction or a percentage plus a fixed rate. For example, your merchant account provider may charge a fee of 3% of each transaction or a fee of 2% + 20p.

While credit card processing fees are often listed as a single charge for each transaction on your merchant account statement, there are actually three different types of fees that make up this charge: interchange fees, assessment fees, and processor fees.

Interchange Fees

An interchange fee is paid to the bank that issued your customer’s credit or debit card. For example, if a customer pays for a purchase with a Visa credit card issued by Barclays, the interchange fee will go to Barclays.

Interchange rates in the UK are capped at 0.3% for credit cards and 0.2% for debit cards, and these are the rates you’ll pay for most transactions.

Assessment Fees

An assessment fee is paid to the credit card network—such as Visa, Mastercard, or American Express—that processes your transaction. As an example, if a customer pays for a purchase with a Visa credit card, the assessment fee will go to Visa.

Assessment fees vary for each card network but typically range from 0.07% to 0.12% of each transaction.

Processor Fees

Processor fees are paid to your merchant account provider. They cover the cost of processing transactions, usually with a steep markup, to generate a profit for your merchant account company.

As an example, say you pay a fee of 3% of each credit card transaction. The interchange fee might be 0.3%, and the assessment fee might be 0.1%. The remaining 2.6% of your transaction is going to your merchant account provider. As this example shows, processor fees make up the majority of what you’ll pay for processing credit and debit card transactions.

Wholesale vs. Markup Fees

Interchange and assessment fees are also known as wholesale fees. They’re set by credit card companies, and you don’t have much ability to negotiate the rates you pay.

Processor fees are known as markup fees. These fees not only cover the cost of credit card processing and running your merchant account but also include enough extra to generate a profit for your merchant account provider. You typically have more leeway to negotiate processor fees and can even switch credit card processing companies to secure lower rates.

Scheduled Fees

Scheduled fees are paid every month to your merchant account provider. These are typically real costs that your credit card processor has to pay in order to manage your merchant account. However, your account provider can also charge markups above and beyond the actual cost of each service.

Let’s take a closer look at common scheduled fees.

Mastercard Merchant Location Fee

Mastercard charges every business a fee per location per year, and this fee is assessed through your merchant account provider. The fee should only be £3 per year, but watch out—many credit card processors mark this up to £15 per year.

Fixed Acquirer Network Fee

Visa charges every business a flat fee known as the Fixed Acquirer Network Fee (FANF) every three months.

The cost of this fee depends mainly on the number of locations your business has and the industry you operate in. For businesses with 10 or fewer locations, the FANF costs between £2 and £5. However, it can be up to £85 for businesses with thousands of locations.

Monthly and Annual Service Fees

A lot of merchant account providers charge a fixed monthly or annual service fee. This fee helps cover all the services your merchant account provider offers, like customer service, an online portal, and more. These fees can vary a lot between credit card processing companies, and you can usually negotiate them when signing up for a contract.

PCI Compliance Fee

The Payments Card Industry Data Security Standard (usually called PCI) is a set of rules businesses accepting card payments must follow. Most merchant account providers have systems in place to maintain your business’ PCI compliance automatically, and they charge this fee to pay for those systems.

Minimum Monthly Service Charge

Many credit card processors have a minimum monthly service charge. This isn’t exactly a fee but rather a minimum threshold you’ll need to meet in transactional processor fees each month. If sales are slow and you don’t process enough transactions to meet your minimum requirement, your merchant account provider will round up your fees to this minimum amount.

PDQ Machine Rental Fee

If you rent or lease a credit card machine from your merchant account provider, you’ll need to pay for it in the form of a monthly fee. Costs for PDQ machine rental can vary widely, from as little as £5 per month to more than £50 per month.

Note that some credit card processors allow you to use a PDQ machine your business already owns. In that case, you shouldn’t have to pay this fee.

Paper Statement Fee

If you request your merchant account statement by mail instead of receiving it electronically, you could pay a fee of up to £10 per month. There’s no statement fee if you simply access your account statement through your merchant provider’s online dashboard.

Payment Gateway Fee

Some merchant account providers charge a monthly fee for enabling you to accept credit and debit cards on your website. However, the payment gateway fee is less common now than it used to be. Instead, many credit card processors just charge a higher transaction fee for online credit card payments compared to in-store payments.

Incidental Fees

Incidental fees are one-time fees that you may have to pay under certain conditions, such as falling out of compliance with your merchant account provider’s rules. Here are some of the most common incidental fees.

Setup Fee

Some merchant account providers charge a one-time setup fee when you open a new account. This usually ranges from £25 to £100. You may be able to negotiate this fee down or get your provider to eliminate it entirely, especially if you’re switching from another merchant account provider.

Early Termination Fee

Many merchant account providers require long-term contracts, and the fees to get out of these contracts early can be steep. Expect to pay at least £200, and potentially more than £1,000, to end your contract early.

Account Closure Fee

Account closure fees apply when you close your merchant account, whether early (in which case you may also have to pay an early termination fee) or at the end of your contract. Account closure fees can range from £15 to £70.

Refund Fee

Some merchant account companies charge a fee when you refund a customer. This fee may be a flat fee, in the range of 50p to £2, or it may be charged in the same way as if the customer were making a new purchase.

Processing Integrity Fees

Processing integrity fees are charged by credit card networks (like Visa, Mastercard, and American Express) for transactions that aren’t compliant with their rules. For example, you could face a processing integrity fee from Visa if you fail to verify a customer’s address when charging a credit card through an online payment gateway.

Processing integrity fees vary by network. Visa charges 10p, Mastercard charges 4p, and American Express charges 0.75%.

Chargeback Fee

Customers can dispute credit card transactions if they believe your business made an unauthorised charge on their card. This can be due to a mistake (such as charging a customer twice) or because a customer’s card was used fraudulently.

If your business is found to be in the wrong, the bank that issued the customer’s card will investigate the dispute and refund the customer. This is known as a chargeback. In addition to refunding the money for the purchase, your merchant account provider will typically charge you £15 to £25 per chargeback.

PCI Non-Compliance Fee

If your business falls out of compliance with PCI rules, your merchant account provider will charge a fee of around £30 for each month you remain out of compliance. You’ll also usually have to pay processing integrity fees and may face a greater number of chargebacks.

Merchant Account Fee Pricing Structures

Merchant account providers can bundle all of the fees we’ve covered in different ways. We’ll explain three of the most common pricing structures.

Interchange Plus

Interchange-plus pricing breaks the fees for each card transaction into two parts. The first part includes the interchange and assessment fees, and the second part includes the processor fee.

The benefit of this pricing scheme is that the interchange and assessment fees you pay reflect the actual costs of your customer’s credit card—there’s no markup at all. Since the processor fee is broken out separately, you can clearly see what your merchant account provider is charging for each transaction.

For most businesses, interchange-plus pricing offers the lowest possible fees. The only downside is that since interchange and assessment fees vary for each customer’s card, it can be hard to predict how much you’ll pay in fees for any single transaction.

Tiered

With tiered pricing, every transaction falls into one of three categories—qualified, mid-qualified, or non-qualified—based on what card your customer is using and whether the transaction was made in-person or online. Each category has its own fee structure, which may be a flat fee or a percentage of your transaction.

Tiered pricing often looks attractive because providers advertise the price for qualified transactions. But many transactions won’t fall into the qualified category, so you could end up paying much more than you would with interchange-plus pricing.

Flat Rate

With flat-rate pricing, you pay the same fee for every transaction. It doesn’t matter what bank issued your customer’s card or what network it uses. However, some providers have different rates for in-person and online transactions.

Flat-rate pricing usually costs slightly more than interchange-plus pricing, but it’s also easier to predict your costs.