Key Takeaways
If your business processes £1 million or more per month in card payments, relatively small differences in payment cost can become material over a year.
At £1 million of monthly card volume:
- a 0.05 percentage-point difference equals approximately £500 per month or £6,000 per year;
- a 0.10 percentage-point difference equals approximately £1,000 per month or £12,000 per year; and
- a 0.25 percentage-point difference equals approximately £2,500 per month or £30,000 per year.
But reducing payment cost is not simply about negotiating the lowest headline percentage.
High-volume businesses should understand:
- interchange;
- card-scheme and processing fees;
- acquirer or PSP margin;
- gateway charges;
- authorisation fees;
- fixed per-transaction charges;
- international and cross-border costs;
- FX;
- chargeback and fraud costs;
- contract terms;
- settlement;
- reporting and reconciliation; and
- the commercial impact of declined transactions.
The objective should be to reduce total payment cost without damaging authorisation performance, customer experience, settlement, technical capability or operational resilience.
Processing £1m+ per month?
Before renewing or switching providers, understand what your payment costs are actually made up of and which parts of the commercial model can realistically be challenged.
Merchant Advice Service can help established businesses understand their payment requirements and compare providers that may be suitable for their volume, integration and operating model.
Why Payment Fees Need More Attention at £1M+ Per Month
As card volume grows, payment processing stops being a relatively small operational expense and becomes a significant commercial line item.
A business processing £1 million per month is processing approximately £12 million per year. At that level, a pricing review should go further than asking:
“What percentage are we paying?”
The better questions are:
- What is our true effective payment cost?
- How much is driven by card mix?
- How much is underlying network cost?
- How much is provider margin?
- Which fees are fixed and which vary?
- Are international transactions disproportionately expensive?
- Are we paying for services we no longer need?
- Could our pricing model be more transparent?
- Could another provider offer better commercial terms without creating technical or operational problems?
The Payment Systems Regulator has previously identified problems affecting merchants' ability to compare card-acquiring services and switch effectively, including issues around pricing transparency.
For larger merchants, that makes regular payment-cost review particularly important.
What Makes Up the Cost of Accepting Card Payments?
There is no single universal “card processing fee”.
The cost paid by a merchant can contain several layers.
Interchange
Interchange is generally paid by the merchant's acquirer to the cardholder's issuing bank.
For qualifying UK domestic consumer-card transactions, the UK Interchange Fee Regulation currently caps interchange at:
- 0.2% for consumer debit and prepaid cards; and
- 0.3% for consumer credit cards.
Those caps do not mean every card transaction costs 0.2% or 0.3%.
They apply to particular domestic consumer-card transactions where the relevant conditions are met. Commercial cards and some international transactions can be treated differently.
Scheme and processing fees
Card schemes can charge acquirers fees associated with participation in and processing through their networks.
These are separate from interchange.
The Payment Systems Regulator has examined increases, complexity and transparency within Mastercard and Visa scheme and processing fees, including how those costs ultimately affect UK merchants.
Provider or acquirer margin
The provider also needs to charge for the acquiring or payment-processing service it provides.
This commercial margin is particularly important when reviewing a high-volume merchant account because it is one of the areas that may be negotiable.
Gateway and technology charges
An ecommerce or integrated merchant may also pay for:
- payment gateway usage;
- authorisations;
- tokenisation;
- fraud tools;
- 3D Secure services;
- reporting;
- API services;
- additional payment functionality; or
- other platform features.
Other commercial costs
Depending on the provider and business model, a merchant may also encounter:
- monthly charges;
- minimum monthly charges;
- terminal rental;
- chargeback fees;
- refund fees;
- PCI-related fees;
- cross-border charges;
- FX margins;
- settlement charges;
- additional account fees; and
- early termination or contractual charges.
Not Every Part of Your Payment Cost Is Negotiable
This distinction is important.
A merchant cannot simply negotiate every component of Visa or Mastercard network cost with its payment provider.
Interchange, scheme and processing costs can be determined by factors outside the provider's direct control.
Commercial areas that may be more open to negotiation can include:
- provider margin;
- gateway pricing;
- fixed transaction charges;
- monthly fees;
- terminal commercials;
- certain service charges;
- contract length;
- minimum commitments;
- settlement terms;
- FX margin;
- support arrangements; and
- the wider commercial package.
That is why a good fee review separates underlying cost from provider commercial terms.
Calculate Your Effective Payment Rate
One of the simplest starting points is to calculate what your business actually spends on payments relative to the card volume processed.
A basic calculation is:
Total relevant payment-processing cost ÷ total card-processing volume × 100
For example, if a business processes £2 million in a month and pays £24,000 in relevant payment-processing costs:
£24,000 ÷ £2,000,000 × 100 = 1.20%
This is only a starting point because the calculation depends on which costs have been included.
For a more useful review, calculate effective cost by:
- month;
- payment channel;
- card type;
- domestic versus international cards;
- customer geography;
- legal entity;
- brand or business unit; and
- provider where more than one PSP or acquirer is used.
This makes it easier to see where cost is actually coming from.
Audit Your Current Payment Statements Before Negotiating
Do not begin a provider negotiation with only your headline processing rate.
For an established merchant, a useful payment-cost audit should include several months of statements and enough transaction information to understand the underlying mix.
Review:
- monthly card-processing volume;
- number of transactions;
- average transaction value;
- debit versus credit;
- consumer versus commercial cards;
- domestic versus international cards;
- card-present, ecommerce and MOTO volume;
- current pricing model;
- provider margin;
- gateway fees;
- fixed transaction charges;
- monthly charges;
- FX;
- chargebacks;
- refunds;
- authorisation performance;
- settlement;
- contract term; and
- any additional charges appearing on the statement.
Our guide to auditing payment fees for high-turnover businesses looks at the statement-review process in more detail.
Blended Pricing vs IC+ and IC++
Pricing structure matters because a low-looking rate is difficult to assess if the underlying cost is hidden.
Blended pricing
A blended model combines multiple elements of payment cost into one or more headline prices.
This can be convenient, but it can make it harder for a larger merchant to establish:
- what the underlying card cost was;
- how much provider margin was charged;
- which card types cost more;
- whether international cards are driving cost; and
- whether a competing quotation is genuinely cheaper.
IC+ and IC++ pricing
Interchange-plus and interchange-plus-plus structures can provide greater visibility by separating more of the underlying network cost from the provider's own commercial charge.
That does not automatically mean IC+ or IC++ will always produce the lowest total cost.
The advantage for a high-volume merchant is transparency.
The business can more easily identify which parts of the cost stack are changing and compare provider margin on a more like-for-like basis.
Read our guide to blended pricing, IC+ and IC++ for high-turnover merchants.
How to Reduce Payment Processing Costs at Scale
1. Renegotiate the Provider Margin
A merchant processing millions of pounds per month should not assume the commercial terms agreed several years ago are still appropriate.
Your negotiating position can be influenced by:
- current processing volume;
- projected growth;
- average transaction value;
- card mix;
- fraud and chargeback performance;
- sector;
- financial strength;
- countries served;
- technical requirements; and
- the overall value of the relationship to the provider.
Ask the incumbent provider to show exactly what would change under a renewed commercial agreement.
2. Compare the Entire Cost Stack, Not Just the Percentage
A competing provider may quote a lower percentage but charge more elsewhere.
Compare:
- percentage margin;
- fixed transaction fee;
- authorisation fee;
- gateway charge;
- monthly fees;
- fraud services;
- chargeback fees;
- refund charges;
- FX;
- cross-border charges;
- terminal costs;
- integration costs;
- minimum commitments; and
- contractual exit costs.
Run the competing proposal against your actual transaction mix rather than comparing two headline prices.
3. Pay Attention to Fixed Per-Transaction Charges
Percentage pricing attracts most attention, but fixed transaction charges can become important for businesses with a low average transaction value.
For example, a fixed 5p difference across 500,000 transactions would represent:
£25,000 of annual cost.
A business processing the same overall value through 50,000 transactions would be affected very differently.
Transaction count therefore needs to be included alongside turnover when comparing pricing.
4. Understand Your Card Mix
A high-volume merchant should know what proportion of transactions comes from:
- UK consumer debit;
- UK consumer credit;
- commercial cards;
- international cards;
- different card schemes; and
- different sales channels.
Two businesses processing the same £2 million per month can have substantially different payment economics because their customer and card mix is different.
This is one reason a generic headline processing rate can be misleading.
5. Review International and Cross-Border Costs
International ecommerce can materially change card-processing economics.
Following the UK's departure from the EU, UK-EEA card-not-present transactions can carry a different interchange structure from qualifying domestic UK consumer transactions.
Businesses with substantial international card volume should identify:
- where customers are based;
- where cards are issued;
- which entity is processing the transaction;
- where acquiring takes place;
- the transaction currency;
- settlement currency;
- cross-border charges; and
- FX.
Local acquiring can be commercially useful in some markets, but it is not automatically the correct answer everywhere.
The decision depends on factors such as volume, legal-entity structure, provider coverage, currencies, customer geography, integration complexity and the commercial terms available.
See our guide to local acquiring versus using one global PSP.
6. Consider Whether One Acquirer Is Still Enough
Some enterprise merchants eventually consider multiple acquirers or payment orchestration.
This can potentially support:
- geographical acquiring strategies;
- payment resilience;
- provider diversification;
- routing;
- commercial negotiation; and
- different provider strengths in different markets.
However, multiple providers also create additional:
- integration work;
- contract management;
- reporting requirements;
- reconciliation complexity;
- tokenisation considerations;
- refund workflows; and
- operational overhead.
A multi-acquirer strategy should solve a defined commercial or operational problem rather than simply adding complexity.
Our Acquirer-Agnostic Payment Gateways guide explains this model in more detail.
7. Include Authorisation Performance in the Cost Review
A cheaper transaction rate is not automatically a saving if significantly fewer legitimate transactions are approved.
Consider a business attempting £2 million of ecommerce transactions each month.
If a new provider reduces visible processing fees but materially reduces successful authorisation, the lost revenue can outweigh the fee saving.
Provider comparison should therefore consider:
- approval rates;
- soft and hard declines;
- 3D Secure performance;
- fraud rules;
- tokenisation;
- account updater services where relevant;
- routing;
- issuer response data; and
- performance by country, card type and channel.
Read our guide to improving payment authorisation rates for enterprise merchants.
8. Review Gateway and Technology Costs
A merchant may negotiate acquiring aggressively while overlooking what it pays elsewhere in the payment stack.
Review whether you are paying separately for:
- a gateway;
- payment orchestration;
- fraud screening;
- token vaults;
- 3D Secure;
- reporting;
- recurring-payment functionality;
- terminal management;
- additional integrations; or
- services that overlap with functionality provided elsewhere.
This does not mean removing useful services simply to reduce cost.
The objective is to identify duplication and determine whether the commercial package still reflects what the business actually uses.
9. Reduce the Operational Cost of Payments
The total cost of payments includes more than provider invoices.
Finance and operations teams may spend significant time:
- matching settlements to transactions;
- investigating unexplained fees;
- reconciling multiple stores or entities;
- processing refunds;
- managing chargebacks;
- moving data between systems; and
- building manual reporting.
For a larger merchant, improving payment integration and reconciliation can therefore have a commercial benefit even where the transaction rate itself does not change.
See our guide to integrated payments across EPOS, ERP, CRM and business software.
10. Review Chargeback and Fraud Cost
Chargebacks can create several different costs:
- the transaction value;
- chargeback administration fees;
- operational handling time;
- fraud losses;
- delivery or service costs already incurred; and
- potential additional provider scrutiny where dispute levels become elevated.
A payment-cost review should therefore look at both processing price and dispute performance.
High-volume merchants should track chargebacks by:
- reason code;
- channel;
- country;
- product or service;
- business unit;
- provider; and
- transaction cohort.
11. Review Your Contract Before the Renewal Date
A business has considerably more negotiating room before it has automatically renewed or reached a contractual deadline.
Check:
- minimum term;
- renewal mechanism;
- notice period;
- termination fees;
- volume commitments;
- pricing-review clauses;
- hardware commitments;
- gateway contracts;
- third-party dependencies; and
- data or token migration provisions.
If you are approaching a renewal, start the commercial review early enough to obtain alternatives before the existing agreement becomes difficult to exit.
Compare Payment Provider Options
How Much Could a Small Rate Difference Be Worth?
It is useful to quantify proposed changes rather than describing them as “small”.
| Monthly card volume | 0.05 percentage points | 0.10 percentage points | 0.25 percentage points |
|---|
| £1 million |
£6,000/year |
£12,000/year |
£30,000/year |
| £2 million |
£12,000/year |
£24,000/year |
£60,000/year |
| £5 million |
£30,000/year |
£60,000/year |
£150,000/year |
These are simple mathematical illustrations rather than expected savings.
The achievable result for an individual merchant depends on its current pricing, card mix, provider margin, transaction count, business model, risk profile, technology and alternative offers available.
Do Not Optimise the Percentage in Isolation
A payment proposal that looks cheaper can become more expensive if it introduces:
- lower authorisation performance;
- new gateway fees;
- higher international costs;
- more expensive FX;
- longer settlement;
- additional reserves;
- poor reporting;
- manual reconciliation;
- integration costs;
- more complicated chargeback handling;
- weaker support; or
- an expensive future migration.
This is why larger merchants should compare commercial fit, technical fit and operational fit together.
Should You Renegotiate or Switch Payment Provider?
A lower rate does not automatically require a provider change.
There are three broad outcomes from a payment-cost review.
Stay on the current arrangement
This may make sense if the existing pricing and service remain competitive and a change would create more cost or operational risk than benefit.
Renegotiate with the existing provider
This may be appropriate where the technology and service work well but the commercials no longer reflect the merchant's size or transaction profile.
A credible competing proposal can also make the negotiation more evidence-based.
Switch provider
A move may warrant consideration where the issue extends beyond price.
Examples include:
- poor commercial terms;
- limited international coverage;
- weak reporting;
- integration limitations;
- settlement requirements;
- poor authorisation performance;
- support problems;
- provider risk appetite;
- lack of required functionality; or
- the business having materially outgrown the existing payment setup.
A switch should include the cost and complexity of migration, not simply the new processing rate.
What to Include in a High-Volume Payment Provider Review
The more accurate the information supplied to potential providers, the more meaningful their proposal can be.
Prepare:
- 12 months of processing volume where available;
- monthly transaction count;
- average and maximum transaction value;
- channel mix;
- debit and credit mix;
- consumer and commercial card mix;
- domestic and international card mix;
- customer countries;
- currencies;
- refund rate;
- chargeback history;
- current provider;
- current fee statements;
- settlement requirements;
- required integrations;
- gateway requirements;
- tokenisation and recurring-payment requirements;
- reporting and reconciliation requirements;
- current contract end date;
- international expansion plans; and
- any issues with the existing payment setup.
This enables a provider to quote against the actual business rather than an assumed transaction profile.
Questions to Ask Your Existing Provider
Before going to market, ask the incumbent provider:
- What pricing model are we currently on?
- What is your margin within our current pricing?
- Can you provide a full breakdown of the charges appearing on our statements?
- Which charges are fixed and which vary by card type?
- How much of our volume is treated as international or cross-border?
- What fixed per-transaction charges are we paying?
- What gateway and authorisation charges apply?
- Are there services on the account that we are no longer using?
- What would our pricing look like on IC+ or IC++?
- Can our current volume qualify for revised commercial terms?
- Are there minimum volume commitments?
- What notice period applies?
- Are there termination or migration charges?
- What settlement options are available?
- Can you provide transaction-level reporting suitable for a proper cost audit?
What to Ask a Competing Payment Provider
Do not accept a quotation containing only a headline percentage.
Ask for enough information to model the offer against your existing transaction data.
That should include:
- pricing model;
- provider margin;
- fixed transaction fees;
- gateway charges;
- authorisation charges;
- international charges;
- FX;
- monthly charges;
- chargeback and refund fees;
- settlement;
- reserve requirements if any;
- contract term;
- minimum commitments;
- technical requirements;
- migration costs;
- support model;
- reporting;
- reconciliation capability; and
- any additional paid services required for your setup.
Switching a High-Volume Merchant Is a Migration Project
The larger and more integrated the payment environment, the less sensible it is to treat provider switching as a simple account-opening exercise.
A migration may involve:
- payment gateway changes;
- API development;
- terminal replacement;
- EPOS changes;
- ERP or CRM integration;
- stored-card tokens;
- recurring payments;
- fraud configuration;
- 3D Secure;
- refund processes;
- chargeback workflows;
- settlement reconciliation;
- reporting;
- testing;
- rollout planning; and
- fallback arrangements.
For businesses using custom payment technology, see our Enterprise PSP Migration guide.
When Is It Worth Reviewing Payment Fees?
There is no single review frequency that suits every merchant.
However, a review is particularly worthwhile when:
- processing volume has grown significantly;
- the existing agreement is approaching renewal;
- the business has not competitively tendered payments for several years;
- international volume has increased;
- transaction mix has changed;
- the business has added ecommerce or face-to-face channels;
- new legal entities or countries have been added;
- scheme or provider charges have changed;
- the current provider has introduced new fees;
- authorisation performance has deteriorated;
- reconciliation has become difficult;
- the business is considering a major systems change; or
- another provider has approached the business with materially different terms.
Comparing Providers for a £1M+ Monthly Merchant
At this level, the best comparison is rarely a simple rate table.
A provider assessment should consider:
- Acceptance fit: can the provider support and underwrite the business?
- Commercial fit: are the total costs and contract terms appropriate?
- Technical fit: can the provider integrate with the merchant's existing systems?
- Geographical fit: can it support the countries, currencies and entities required?
- Operational fit: are settlement, reporting, refunds, reconciliation and support suitable?
- Performance fit: can the payment setup support the merchant's requirements around authorisation, fraud and resilience?
The lowest quoted processing rate can fail the comparison if the wider solution does not meet those requirements.
Compare Payment Provider Options
How Merchant Advice Service Can Help
Merchant Advice Service works with businesses that need to understand their payment requirements before comparing providers.
For high-volume merchants, this can include looking at:
- current payment setup;
- processing volume;
- pricing model;
- provider requirements;
- card and transaction mix;
- international processing;
- gateway requirements;
- integrations;
- settlement;
- reporting;
- reconciliation;
- migration requirements; and
- provider fit.
The objective is not simply to find the provider displaying the lowest rate.
It is to understand what the business actually requires and identify providers whose commercial, technical and operational model may be suitable.
Sources & References
About Merchant Advice Service
Merchant Advice Service (MAS) provides independent information, comparison and provider-matching support for UK businesses looking for payment services.
We help businesses understand their payment requirements before introducing them to providers that may be suitable. MAS does not provide payment processing services directly.
Disclosure: Merchant Advice Service may receive commission from payment providers following a successful introduction. This does not increase the price paid by the merchant and does not determine which providers are included in our editorial guidance.
