Merchant Account Fees Explained

Merchant Account Fees Explained: What UK Businesses Really Pay

The price of accepting a card payment is rarely explained by one percentage.

A provider might advertise:

Card processing from 0.6%

Another might quote:

1.2% with no monthly fee

A larger merchant may receive an offer described as:

Interchange plus 0.35% and 5p

None of those figures tells the business its complete payment cost.

The final amount can also be affected by:

• The type of card used
• Whether the card is personal or commercial
• Where the card was issued
• Whether the customer paid online, by phone or in person
• The pricing model
• Authorisation charges
• Scheme and processing fees
• Payment-gateway fees
• Terminal rental
• Monthly minimums
• PCI administration charges
• Refunds and chargebacks
• Currency conversion
• Settlement and reserve arrangements
• Optional fraud, reporting and tokenisation services

A business processing £250,000 per month could have a headline transaction charge of £3,250 but pay another £675 through authorisation, gateway, account and compliance-related charges.

Its real cost would therefore be:

£3,925, equivalent to 1.57% of card turnover

This guide explains what UK merchant account fees mean, which charges may be negotiable and how to calculate the actual cost of accepting payments.

Written or reviewed by Libby James, founder of Merchant Advice Service and specialist in merchant payments and complex provider requirements.

Last reviewed: August 2026

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Quick answer: What are merchant account fees?

Merchant account fees are the charges a business pays to accept, process and settle card payments.

The main merchant service charge ordinarily includes:

1. Interchange fees
2. Card scheme and processing fees
3. The acquirer or processor’s other costs and margin

The Payment Systems Regulator describes the merchant service charge as the total amount paid to the acquirer for card-acquiring services. It comprises interchange, scheme fees and acquirer net revenue, which includes the acquirer’s other costs and margin. 

However, the merchant service charge may not represent the business’s full payment cost.

A merchant may also pay separately for:

• Authorisations
• Gateway access
• Card terminals
• PCI administration
• Monthly account fees
• Refunds
• Chargebacks
• Fraud tools
• Currency conversion
• Premium settlement
• Other payment services

The most useful figure is therefore not always the advertised card rate.

It is:

Total payment-related charges ÷ total card sales

This produces the business’s effective processing rate.

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What happens to the cost of a card payment?

In a typical four-party card transaction, the main participants are:

• The customer
• The customer’s card issuer
• The merchant
• The merchant’s acquirer

The card scheme connects the issuer and acquirer and sets rules for participating in the payment system.

From the merchant’s perspective, the simplified fee structure is:

Interchange

Paid by the acquirer to the customer’s card issuer.

↓

Scheme and processing fees

Paid for access to and use of the card network and related processing services.

↓

Acquirer costs and margin

The provider’s cost of delivering acquiring services plus its commercial margin.

↓

Additional merchant services

Gateway, terminals, reporting, fraud tools and other services that may be invoiced separately.

Interchange does not normally go to Visa or Mastercard. It is generally paid by the merchant’s acquirer to the cardholder’s issuer. 

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Merchant service charge versus total payment cost

These two figures are not necessarily the same.

Merchant service charge

This is the core amount charged for card-acquiring services.

It may appear as:

• One blended percentage
• Separate debit and credit rates
• Interchange plus a provider margin
• Interchange, scheme fees and markup shown separately
• A percentage plus a fixed transaction fee

Total payment cost

This includes the merchant service charge plus other payment-related charges.

For example:

A merchant comparing only the £3,250 transaction charge would overlook more than 17% of its payment cost in this example.

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How to calculate your effective processing rate

Use:

Total payment cost ÷ total card sales × 100

Example

Monthly card sales: £250,000

Total payment-related charges: £3,925

The calculation is:

£3,925 ÷ £250,000 × 100 = 1.57%

The business’s effective processing rate is therefore:

1.57%

This is usually a more useful starting point than comparing one headline percentage.

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What should be included in the calculation?

Include charges connected with accepting and processing the payments being reviewed.

These may include:

• Merchant service charges
• Fixed transaction charges
• Authorisation fees
• Gateway charges
• Monthly account fees
• PCI-related administration fees
• Terminal rental
• Reporting fees
• Fraud-management services
• Tokenisation services
• Account updater
• Refund fees
• Chargeback administration fees
• International-card additions
• Cross-border charges
• Currency conversion
• Settlement add-ons
• Minimum monthly charges

Keep one-off items separate, such as:

• Installation
• Terminal purchase
• Integration development
• Early termination
• Hardware replacement

Showing recurring and one-off costs separately prevents one unusual charge from distorting the normal monthly rate.

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MAS insight: Calculate more than one rate

A single effective rate can hide useful information.

Calculate:

Overall effective rate

All payment costs divided by all card turnover.

Online effective rate

Online payment costs divided by online card turnover.

Card-present effective rate

Terminal-related payment costs divided by card-present turnover.

International-card effective rate

International-card costs divided by international-card turnover.

Cost per successful transaction

Total payment cost divided by the number of successful payments.

These calculations can reveal that one channel or customer group is responsible for a disproportionate amount of the total cost.

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What is an interchange fee?

Interchange is generally paid by the merchant’s acquirer to the customer’s card issuer when a card payment is made.

The acquirer ordinarily incorporates that cost into the price charged to the merchant.

Interchange can vary according to factors such as:

• Card type
• Consumer or commercial card
• Debit, credit or prepaid card
• Issuer location
• Merchant location
• Card-present or remote payment
• Authentication and transaction characteristics
• Scheme programme
• Transaction category

The merchant does not normally negotiate an individual interchange rate directly with the customer’s bank.

However, the merchant can negotiate:

• The provider’s markup
• The pricing model
• How transparently interchange is passed through
• Fixed transaction charges
• Other commercial terms

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UK consumer interchange caps

Under the current UK Interchange Fee Regulation, certain consumer-card transactions are capped where the merchant, acquirer and card issuer are all located within the UK.

Where the caps apply, they currently limit interchange to:

• 0.2% for consumer debit cards, including prepaid cards
• 0.3% for consumer credit cards

Those caps apply to interchange, not the complete merchant service charge. A provider can therefore charge the merchant more than 0.2% or 0.3% once scheme costs, acquiring services, processing and margin are included. 

The domestic caps do not automatically apply to:

• Commercial cards
• Transactions involving an issuer or acquirer outside the UK
• Every three-party card arrangement
• The complete merchant service charge
• Gateway, terminal or other additional services

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Why can a consumer debit-card payment cost more than 0.2%?

Because the 0.2% figure is an interchange cap, not a cap on the merchant’s complete price.

The merchant may also pay:

• Scheme and processing fees
• Acquirer margin
• Fixed transaction charge
• Authorisation charge
• Gateway fee
• Terminal costs
• Monthly charges
• Other services

A quotation of:

0.6% plus 5p

does not necessarily breach the interchange cap.

The provider is charging for more than interchange.

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Commercial cards

Business, corporate and purchasing cards can carry different costs from personal consumer cards.

They may be used for:

• Company travel
• Procurement
• Employee expenses
• Supplier payments
• Purchasing programmes

The UK domestic consumer interchange caps do not apply to commercial cards in the same way as eligible consumer cards.

A merchant with a high proportion of business customers should therefore identify:

• Consumer-card percentage
• Commercial-card percentage
• Domestic-card percentage
• International-card percentage

A quote based mainly on UK consumer cards may not accurately predict the cost of a business-to-business transaction mix.

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International and cross-border cards

A card issued outside the UK may attract different interchange, scheme and cross-border costs.

The domestic UK interchange caps apply where the merchant, acquirer and issuer are all within the UK. Cross-border transactions involving an issuer or acquirer outside the UK are outside those domestic caps. 

This can matter significantly for merchants in:

• Travel
• Tourism
• Hospitality
• Ecommerce
• Education
• Software
• Luxury retail
• Export
• Events
• International subscriptions

Ask a provider to price the business using its actual issuer-country mix rather than assuming every transaction involves a UK-issued consumer card.

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What are card scheme and processing fees?

Card scheme fees are charged in connection with participating in and using a card payment system.

Processing fees can relate to services such as:

• Authorisation
• Clearing
• Settlement
• Network processing
• Risk and security services
• Data and reporting
• Optional scheme services

The merchant may not see each underlying fee individually.

Depending on the pricing arrangement, the acquirer may:

• Include them within a blended rate
• Pass them through as part of IC++
• Group several fees together
• Show some fees separately
• Absorb certain charges within its margin

The PSR’s 2025 review found that Mastercard and Visa had increased their core scheme and processing fees to acquirers by at least 25% since 2017, costing UK businesses at least £170 million more each year. The regulator also identified insufficiently clear fee information as a source of cost for acquirers and merchants. 

This does not mean every merchant’s individual bill increased by exactly 25%.

The effect depends on:

• Card mix
• Provider
• Pricing model
• Pass-through arrangements
• Negotiated terms
• Transaction profile

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Can scheme fees be negotiated?

The underlying fee is generally set by the scheme rather than negotiated directly between an individual merchant and Visa or Mastercard.

However, the merchant can still examine:

• Whether the fee has been passed through accurately
• Whether the provider has added a markup
• Whether several charges have been grouped together
• Whether an optional service is being used
• Whether the overall acquirer margin can be reduced
• Whether another pricing model would provide better transparency

Under IC++ pricing, a merchant may see scheme charges more distinctly.

Under blended pricing, the provider may combine several cost components into one rate.

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What is the acquirer or processor margin?

The acquirer margin is the commercial amount retained by the provider after accounting for its underlying costs.

It may cover:

• Acquiring infrastructure
• Underwriting
• Fraud and risk management
• Customer support
• Settlement
• Reporting
• Compliance
• Technology
• Operational costs
• Commercial profit

The margin may be expressed as:

• Percentage
• Fixed amount per transaction
• Percentage plus fixed fee
• Different rates for different cards
• Monthly charge
• Combination of charges

This is often one of the more negotiable parts of a merchant account.

The amount offered can depend on:

• Annual turnover
• Transaction count
• Average transaction value
• Sector
• Refund and dispute history
• Delivery model
• Financial position
• Integration
• Contract length
• Other services purchased
• Expected growth

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MAS insight: “Cost plus” does not mean “no provider margin”

A quotation described as:

Interchange plus

still contains a provider margin.

For example:

Interchange + 0.35% + 5p

The 0.35% and 5p are part of the provider’s commercial pricing.

There may also be:

• Scheme fees
• Authorisation charges
• Gateway costs
• Monthly charges
• Additional service fees

Ask precisely what the word plus includes.

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What is an authorisation fee?

An authorisation occurs when a payment request is sent for approval.

A provider may charge a fixed amount for each authorisation attempt.

This can matter where the business has:

• Large numbers of low-value transactions
• Repeated subscription attempts
• High decline rates
• Card-verification requests
• Account-validation transactions
• Multiple partial authorisations
• Automated retries

Example

Authorisation charge: 4p

Monthly authorisation attempts: 50,000

Monthly authorisation cost:

50,000 × £0.04 = £2,000

This can be significant even where the percentage card rate looks competitive.

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Successful transactions versus authorisation attempts

Check whether the fixed fee applies to:

• Successful payments only
• Every authorisation request
• Declines
• Reversals
• Verification attempts
• Recurring retries
• Refunds

A merchant with 40,000 completed payments but 55,000 authorisation attempts may be charged on 55,000 events rather than 40,000 sales.

This is particularly relevant for recurring and subscription businesses.

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What is a payment-gateway fee?

A payment gateway sends payment information between the merchant’s checkout and the relevant payment-processing parties.

Gateway pricing can include:

• Monthly platform fee
• Fixed fee per transaction
• Percentage per transaction
• Minimum monthly charge
• Setup fee
• Fraud tools
• Tokenisation
• Account updater
• Recurring billing
• Reporting
• Additional merchant IDs
• Additional currencies

Some providers bundle gateway and acquiring into one price.

Others invoice them separately.

A merchant changing acquirer may not necessarily need to replace its gateway, depending on:

• Existing integration
• Gateway compatibility
• Token ownership
• Contract
• Technical configuration

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Gateway fee example

Suppose a merchant pays:

• £25 monthly gateway fee
• 6p per transaction
• 10,000 monthly transactions

The gateway cost is:

£25 + £600 = £625 per month

A quote showing only the acquiring percentage would miss that £625.

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Card-terminal fees

A card-present merchant may pay for:

• Terminal rental
• Terminal purchase
• SIM or connectivity
• Installation
• Replacement
• Maintenance
• Paper rolls
• Additional terminals
• EPOS integration
• Early termination
• Collection or return

The terminal agreement may be separate from the merchant-acquiring agreement.

The PSR’s card-acquiring remedies require certain major providers to use summary information boxes and trigger messages and limit relevant point-of-sale terminal lease and rental contracts to a maximum initial duration of 18 months, followed by a rolling monthly arrangement. 

Before switching provider, check both:

1. The acquiring contract
2. The terminal contract

Ending one does not necessarily end the other.

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Monthly account fees

A provider may charge a recurring fee for:

• Merchant account
• Statement
• Reporting
• Support
• Dashboard
• Merchant ID
• Risk monitoring
• Service package
• Additional location
• Additional currency

A low monthly charge may be insignificant for a large merchant.

For a small or seasonal merchant, it can materially increase the effective rate.

Example

Monthly card sales: £2,000

Monthly account and terminal fees: £40

Before transaction charges, the fixed cost already represents:

£40 ÷ £2,000 × 100 = 2%

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Minimum monthly service charges

A minimum monthly charge means the merchant must generate at least a specified amount in qualifying transaction fees.

Suppose:

Minimum service charge: £30

Qualifying transaction charges generated: £18

The provider may charge an additional:

£12

to reach the £30 minimum.

Check which charges count towards the minimum.

Gateway, terminal and PCI fees may sit outside it.

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PCI DSS and PCI-related fees

PCI DSS is the security standard applying to organisations involved in storing, processing or transmitting payment-account data.

Outsourcing payment processing can substantially reduce the merchant’s technical scope, but it does not automatically remove every responsibility. Merchants still need to understand their validation obligations and the responsibilities shared with their payment providers. 

A provider may charge:

• PCI administration fee
• Compliance-management fee
• Non-compliance fee
• Security scanning fee
• Support package

These are provider charges rather than fines imposed directly by the PCI Security Standards Council.

The PCI Council says it does not manage individual compliance programmes or impose consequences for non-compliance. Payment brands and other organisations may operate their own compliance programmes and contractual consequences. 

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MAS insight: Ask what the PCI fee pays for

Ask whether the charge includes:

• Self-assessment support
• Approved scanning
• Compliance portal
• Telephone assistance
• Breach support
• Insurance
• Certificate or validation processing

Also ask:

• Can the fee be removed after validation?
• Is there a separate non-compliance charge?
• When is compliance renewed?
• Is the merchant using the correct questionnaire?
• Does the integration reduce the merchant’s scope?

A fee labelled PCI is not automatically unavoidable in every provider contract.

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Refund fees

Refund pricing varies.

The merchant may encounter:

• No separate refund fee
• Fixed refund administration charge
• Gateway fee
• Authorisation-related fee
• Original processing fee not returned
• Partial return of the original fee
• Different treatment by card or payment method

Ask:

1. Is there a separate fee to issue a refund?
2. Is the original transaction charge returned?
3. Are interchange or scheme elements adjusted?
4. Does the gateway charge again?
5. How are partial refunds treated?
6. How are currency differences handled?

A provider quoting a low transaction rate can still be expensive for a business with a high refund frequency.

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Chargeback fees

A chargeback can involve two separate financial effects:

1. The disputed transaction amount
2. A chargeback administration fee

The provider may also apply:

• Retrieval or information-request fee
• Dispute-management fee
• Excessive-dispute charge
• Monitoring-related charge
• Currency adjustment

The agreement should explain whether an administration fee applies:

• When the chargeback is first raised
• Only if the merchant loses
• Even if the merchant successfully defends it
• Per dispute stage

Do not confuse a chargeback fee with the disputed transaction value.

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Cross-border and international-card fees

International processing can introduce several different charges:

• International-card interchange
• Cross-border scheme fee
• Acquirer international-card markup
• Currency conversion
• Settlement conversion
• Multi-currency account fee
• Dynamic currency conversion charge
• Additional fraud or authentication costs

Ask the provider to separate:

Card location

Where the card was issued.

Customer payment currency

The currency the customer used.

Processing currency

The currency submitted into the payment system.

Settlement currency

The currency paid into the merchant bank account.

A customer can use a foreign-issued card while paying in GBP.

That may still attract international-card costs even though no customer-facing currency conversion occurred.

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Currency conversion costs

A merchant accepting several currencies should establish:

• Provider’s exchange-rate source
• Conversion margin
• Conversion timing
• Settlement currency
• Minimum conversion charge
• Refund exchange-rate treatment
• Chargeback currency treatment
• Whether balances can be held without conversion

A transaction fee of 1% can be overshadowed by a significant conversion margin.

The merchant should compare:

Net GBP or settlement currency actually received

rather than only the card-processing percentage.

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American Express and other card schemes

American Express can operate differently from the four-party model commonly associated with Visa and Mastercard.

A merchant might receive:

• A separate American Express agreement
• American Express acceptance through another provider
• One combined statement
• Separate settlement
• Different fees and contract terms

Do not assume that a Visa or Mastercard quote automatically includes:

• American Express
• Diners Club
• Discover
• UnionPay
• JCB
• Other card brands

Ask which card brands are included and how each is priced.

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Digital wallets

Apple Pay and Google Pay normally use an underlying payment credential, such as a debit or credit card.

The cost to the merchant can therefore depend on:

• Underlying card
• Issuer country
• Card type
• Acquirer
• Gateway
• Pricing model

Do not assume every wallet payment has:

• One universal rate
• No additional cost
• A separate wallet fee
• Domestic consumer-card pricing

Review how wallet transactions appear in the provider’s reporting.

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Optional payment-service fees

Providers may offer additional services such as:

• Fraud screening
• 3D Secure tools
• Network tokens
• Card-account updater
• Recurring billing
• Payment links
• Virtual terminal
• Pay by Bank
• Multi-currency pricing
• Advanced reconciliation
• Revenue recovery
• Smart routing
• Additional dashboards
• Data export
• Dedicated support

An optional service is not necessarily poor value.

A fraud tool costing £500 per month could be worthwhile if it prevents materially greater fraud losses.

The correct question is:

What commercial result does this service produce?

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Rolling reserves and settlement delays are not ordinary fees

A rolling reserve is normally retained money rather than an ordinary processing charge.

A settlement delay changes when the business receives eligible funds.

Neither should automatically be added to the fee total as though it were a permanent expense.

However, both can create a real working-capital cost.

For example:

Monthly card processing: £500,000

Rolling reserve: 10%

New amount retained: £50,000

The business may need to replace that working capital using:

• Existing cash
• Overdraft
• Loan
• Investor funding
• Supplier credit

That funding has a commercial cost even if the reserve is ultimately released.

See the MAS guides to:

• Card payment settlement times
• Merchant account rolling reserves

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Common merchant-account pricing models

Providers do not all present their charges in the same way.

The main models include:

1. Flat or blended pricing
2. Differential pricing
3. Interchange plus
4. Interchange plus plus

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Flat or blended pricing

The provider charges one rate for a broad group of payments.

For example:

1.2% + 10p per transaction

Potential benefits

• Easy to understand
• Predictable
• Simple reconciliation
• Suitable for some smaller merchants
• Less exposure to complex statement detail

Potential disadvantages

• Limited visibility of underlying costs
• Higher-cost and lower-cost cards grouped together
• Savings from favourable card mix may remain with the provider
• Difficult to compare provider margin
• Rate may not reflect the merchant’s actual profile

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Differential blended pricing

The provider charges different rates for categories such as:

• Consumer debit
• Consumer credit
• Commercial cards
• International cards
• Card-present payments
• Online payments

For example:

This provides more detail than one flat rate but can still combine interchange, scheme costs and provider margin.

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Interchange plus pricing

The merchant pays:

Underlying interchange + provider margin

The quote might appear as:

Interchange + 0.35% + 4p

Ask whether scheme and processing fees are:

• Included in the markup
• Passed through separately
• Grouped into another charge

The name IC+ is not always presented identically by every provider.

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Interchange plus plus pricing

IC++ generally separates:

1. Interchange
2. Scheme and processing fees
3. Acquirer markup

This can provide greater visibility.

However, it can also make statements more complicated because the underlying cost differs between transaction categories.

IC++ is not automatically cheaper.

The result depends on:

• Provider markup
• Card mix
• Scheme costs
• Fixed charges
• Other services
• The blended rate being replaced

See the MAS guide to when high-turnover businesses should consider IC+ or IC++ pricing.

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Which pricing model is best?

There is no universally best model.

Blended pricing may suit a business that values:

• Simplicity
• Predictability
• Easier reconciliation
• Low administrative burden

IC+ or IC++ may suit a business that values:

• Transparency
• Detailed cost analysis
• Visibility of provider margin
• Greater control over a complex card mix

The correct comparison is not:

Blended is expensive and IC++ is cheap.

It is:

What would each model have cost using the same transactions?

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MAS insight: Reprice historic transaction data

The most reliable comparison applies the proposed pricing to a representative historic transaction file.

For example, use three to twelve months of:

• Transaction values
• Card categories
• Issuer countries
• Channels
• Refunds
• Authorisations
• Payment methods

Then calculate:

• Current cost
• Proposed cost
• Fixed charges
• Gateway costs
• International-card costs
• Terminal costs
• Settlement effect
• Contract costs

A generic quote based only on monthly turnover can be inaccurate where the merchant has an unusual card mix.

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Why the headline percentage can be misleading

Consider two providers.

Provider A

• Card rate: 0.7%
• Fixed fee: 8p
• Monthly fee: £50

Provider B

• Card rate: 0.9%
• No fixed transaction fee
• No monthly fee

Which is cheaper depends partly on:

• Transaction count
• Average transaction value
• Card mix
• Additional charges

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Low-value transaction example

Transaction value: £5

Provider A

• 0.7% of £5 = 3.5p
• Fixed fee = 8p
• Total = 11.5p
• Effective transaction cost = 2.3%

Provider B

• 0.9% of £5 = 4.5p
• Total = 4.5p
• Effective transaction cost = 0.9%

Provider B is cheaper for this individual low-value transaction despite having the higher percentage.

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High-value transaction example

Transaction value: £1,000

Provider A

• 0.7% = £7
• Fixed fee = 8p
• Total = £7.08

Provider B

• 0.9% = £9

Provider A is cheaper for this high-value transaction.

This is why average transaction value matters.

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Payment cost per successful transaction

Calculate:

Total payment cost ÷ successful transactions

Example

Total payment cost: £3,925

Successful payments: 25,000

The average cost is:

£3,925 ÷ 25,000 = 15.7p per successful payment

This is useful for:

• Low-value retail
• Parking
• Transport
• Ticketing
• Micropayments
• Subscriptions
• Charities
• Digital services

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Cost per order versus cost per payment

A single order can involve several payment events.

For example:

1. Card verification
2. Initial authorisation
3. Partial capture
4. Additional capture
5. Refund
6. Recurring retry

The merchant may therefore have more billable payment events than customer orders.

For subscription businesses, one customer can generate:

• Initial customer-initiated transaction
• Monthly merchant-initiated transactions
• Failed attempts
• Retries
• Account updater events
• Refunds

The payment-cost model should reflect the complete lifecycle.

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Declined payments can still create costs

Depending on the provider, an unsuccessful payment may still generate:

• Authorisation fee
• Gateway event
• Fraud-tool assessment
• Retry cost
• Account-validation cost

A low headline rate does not compensate for a payment setup with unnecessarily poor authorisation performance.

The merchant should consider:

• Successful-payment rate
• Decline reasons
• Retry strategy
• Authentication
• Issuer response data
• Checkout performance

The most useful commercial measure may be:

Total payment cost per £1 of successfully collected revenue

rather than cost per attempted payment.

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What determines a merchant’s processing price?

Providers may consider:

• Annual card turnover
• Monthly volume
• Transaction count
• Average transaction value
• Maximum transaction value
• Card-present versus remote mix
• Consumer versus commercial cards
• Domestic versus international cards
• Sector and MCC
• Refunds
• Chargebacks
• Fraud
• Fulfilment period
• Business age
• Financial position
• Settlement
• Reserve
• Integration
• Contract
• Other products purchased

Two businesses processing the same monthly amount can therefore receive different terms.

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Example: Same turnover, different payment profile

Merchant A

• £500,000 monthly turnover
• 50,000 transactions
• £10 average transaction
• Mainly UK consumer debit
• Card present

Merchant B

• £500,000 monthly turnover
• 500 transactions
• £1,000 average transaction
• International commercial cards
• Online future delivery

The total turnover is identical.

The underlying costs, risk and commercial requirements are not.

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Which merchant-account fees can be negotiated?

The answer depends on the provider and contract.

Even where an underlying cost is not directly negotiable, the merchant can negotiate how the provider packages and passes it through.

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MAS insight: Ask the provider to separate cost from margin

Under a transparent pricing model, ask for:

• Interchange
• Scheme and processing fees
• Provider percentage margin
• Provider fixed margin
• Authorisation fee
• Gateway
• Monthly charges
• Optional services

This helps answer:

Which part changed because the underlying card mix changed, and which part changed because the provider changed its price?

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When should merchant account fees be reviewed?

Review costs:

• At least annually
• Before contract renewal
• After a significant volume increase
• After a change in average transaction value
• When online and card-present mix changes
• When international sales increase
• After a new business model launches
• When a reserve is introduced
• When settlement changes
• After acquiring another business
• Before changing gateway or platform
• After receiving a price-change notice

Do not wait until the contract has automatically renewed.

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What information should be collected for a fee review?

Use at least three representative months where possible.

Collect:

• Card turnover
• Transaction count
• Authorisation count
• Average transaction
• Maximum transaction
• Card-present turnover
• Online turnover
• MOTO turnover
• Consumer debit
• Consumer credit
• Commercial cards
• International cards
• Refunds
• Chargebacks
• Gateway invoices
• Terminal invoices
• PCI fees
• Monthly charges
• Settlement reports
• Reserve information
• Contract
• Price-change notices

A single statement can be misleading if the month was unusually busy, quiet or international.

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The monthly merchant-fee audit

Complete the following table:

Then calculate:

Effective processing rate

Total cost ÷ card turnover × 100

Cost per successful payment

Total cost ÷ successful payments

Fixed cost per month

Add charges that remain even when no payments are processed.

Variable cost

Add the charges that change with transaction volume or value.

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How to read the provider’s summary information box

The PSR directed certain significant card-acquiring providers to give merchants clearer summary information and online comparison tools.

The summary box can help identify:

• Current pricing
• Contract information
• Key service details
• Potential switching information

The PSR introduced these measures after finding that many merchants had difficulty comparing prices and that businesses with annual card turnover up to £50 million could benefit from shopping around or negotiating. 

Do not rely on the summary box alone where the business has:

• Complex interchange pricing
• Multiple merchant IDs
• Several currencies
• Gateway contracts
• Separate terminal agreements
• Rolling reserves
• Platform or marketplace payments

Use it as the starting point for the full review.

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What should you do after receiving a price increase?

1. Save the notice

Record:

• Date received
• Effective date
• Charges changing
• Existing price
• New price
• Contractual clause
• Right to terminate
• Response deadline

2. Identify the reason

Ask whether the change relates to:

• Interchange
• Scheme fees
• Provider margin
• Gateway pricing
• Terminal pricing
• Risk
• Settlement
• New service

3. Calculate the annual effect

A change of 0.1% on:

£5 million annual card turnover

equals:

£5,000 per year

before fixed charges.

4. Compare with actual card data

Do not apply the percentage only to headline turnover if different card categories have different changes.

5. Negotiate

Provide:

• Current turnover
• Growth
• Card mix
• Processing history
• Competing offer
• Services required

6. Check the contract before switching

Review:

• Notice period
• Termination fee
• Terminal agreement
• Gateway agreement
• Data and token migration
• Settlement
• Reserve
• Integration

See the MAS guide to switching merchant account providers.

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Can a business add its card fees to the customer’s bill?

Do not assume the business can recover its card costs by adding a consumer card surcharge.

UK rules prohibit surcharges for a wide range of consumer payment methods, including many ordinary consumer card transactions. Some commercial-card and other payment situations can be treated differently, but the rules need to be checked carefully before any payment fee is imposed. 

A business should not label a card surcharge as:

• Administration fee
• Booking fee
• Handling fee
• Service charge

where the charge is, in substance, imposed because of the customer’s payment method.

Obtain legal advice where the charging model is uncertain.

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Find Your New Processor

Can a provider charge a fee for paying out quickly?

Potentially.

Providers may offer:

• Standard settlement
• Next-working-day settlement
• Weekend settlement
• Same-day payout
• Instant payout

The faster option may involve:

• Higher transaction rate
• Fixed payout fee
• Percentage payout fee
• Eligibility criteria
• Reserve or balance requirements

Compare the premium with the business’s actual working-capital need.

A next-day payout is not automatically better value if the standard settlement would not create a cash-flow problem.

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Are merchant account fees subject to VAT?

Payment-related invoices do not always apply VAT to every charge in the same way.

The treatment can depend on:

• Nature of the service
• Supplier
• Contract
• Gateway service
• Equipment rental
• Support or software
• Bundled service

Do not assume:

• Every charge includes VAT
• Every charge is VAT exempt
• A quote and invoice use the same presentation

Check whether the quoted price is:

• Inclusive of VAT
• Exclusive of VAT
• Mixed according to service

Use the provider’s tax invoice and obtain accounting advice where required.

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Cheap card processing versus suitable card processing

The lowest rate is not automatically the best commercial result.

Consider:

• Approval and authorisation performance
• Settlement
• Reserve
• Refund capability
• Chargeback support
• Gateway reliability
• Integration
• Reporting
• Customer service
• Contract
• Payment methods
• International support
• Subscription functionality

A provider saving £500 per month in fees could be poor value if it causes:

• More declined payments
• Reconciliation work
• Slower settlement
• Lost recurring credentials
• Integration failure
• Inadequate customer support

The goal is not simply:

The lowest transaction percentage

It is:

The best total payment outcome for the business.

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Find Your New Processor

MAS insight: Measure cost against successfully collected revenue

Suppose:

Provider A

• Monthly payment cost: £8,000
• Successfully collected revenue: £1,000,000

Effective cost:

0.8%

Provider B

• Monthly payment cost: £7,500
• Successfully collected revenue: £970,000

Headline fees are £500 lower.

But the business collected £30,000 less.

The provider with the lower fee is not necessarily producing the better commercial result.

The cause would need proper investigation before attributing the difference solely to the payment provider.

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How to compare merchant-account quotations

Before comparing two offers, normalise the information.

Then apply each offer to the same transaction data.

Do not compare:

• Provider A’s consumer debit rate
• With Provider B’s overall blended rate

or:

• Provider A’s acquiring cost
• With Provider B’s combined acquiring, gateway and terminal cost

The scope of each quotation must be the same.

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Questions to ask a payment provider about fees

Transaction pricing

1. Is the price blended, differential, IC+ or IC++?
2. What does the quoted rate include?
3. Which cards are excluded?
4. Are commercial cards priced differently?
5. Are international cards priced differently?
6. Is there a fixed fee per transaction?

Authorisations

7. Are declined attempts charged?
8. Are verification attempts charged?
9. Are recurring retries charged?
10. Are reversals charged?

Scheme and interchange

11. Are interchange fees passed through at cost?
12. Are scheme fees shown separately?
13. Is any markup added to scheme fees?
14. How are fee changes communicated?

Gateway and software

15. Is the gateway included?
16. Is there a monthly gateway charge?
17. Is there a transaction charge?
18. Which fraud tools are included?
19. Is tokenisation included?
20. Is account updater included?

Account charges

21. Is there a monthly fee?
22. Is there a minimum monthly charge?
23. Is there a PCI fee?
24. Is there a non-compliance fee?
25. Are statements or reports charged?

Refunds and disputes

26. Is there a refund fee?
27. Is the original processing fee returned?
28. What is the chargeback fee?
29. Does it apply if the dispute is won?

Settlement and reserve

30. What is the settlement timetable?
31. Does faster settlement cost more?
32. Is a reserve required?
33. Is the reserve capped?

Contract

34. What is the initial term?
35. What notice is required?
36. Is there an early termination fee?
37. Is the terminal contract separate?
38. Can prices change during the term?

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Reviewing your merchant account fees?

Tell Merchant Advice Service:

• Current provider
• Monthly and annual card turnover
• Transaction count
• Average transaction
• Maximum transaction
• Card-present, online and MOTO split
• Consumer and commercial-card mix
• Domestic and international-card mix
• Current pricing model
• Current statements
• Gateway
• Terminals
• Settlement
• Reserve
• Refund and chargeback profile
• Contract end date
• What you want to improve

MAS can help you:

• Understand the charges appearing on your statements
• Calculate your effective processing rate
• Identify information needed for a like-for-like comparison
• Assess how pricing interacts with settlement, reserve and payment performance
• Consider potentially relevant payment-provider arrangements

Merchant Advice Service cannot guarantee:

• A particular saving
• A specific card rate
• Provider approval
• A reserve-free facility
• That switching will improve every part of the payment operation

Final pricing, underwriting, contracts and service terms remain with the relevant payment provider.

Find Your New Processor

Sources and regulatory references

• Payment Systems Regulator — The IFR and merchants
  Explains UK domestic consumer interchange caps, the merchant service charge and the limits of the cap.
• Payment Systems Regulator — The Interchange Fee Regulation
  Current information on the scope of the UK IFR and domestic card transactions.
• Payment Systems Regulator — Card-acquiring market review
  Findings on merchant pricing, transparency, comparison and switching.
• Payment Systems Regulator — Card-acquiring market remedies
  Details of merchant summary boxes, quotation tools, trigger messages and terminal-contract remedies.
• Payment Systems Regulator — Scheme and processing fees final report
  The PSR’s findings on increases in Mastercard and Visa core scheme and processing fees and fee transparency.
• Payment Systems Regulator — Cross-border interchange-fee review
  Current information on UK–EEA and other cross-border interchange costs.
• GOV.UK — Consumer rights and payment surcharges
  Government guidance on restrictions applying to payment-method surcharges.
• PCI Security Standards Council — Outsourced payment processing
  Explains the PCI responsibilities remaining where payment processing is outsourced.
• PCI Security Standards Council — Consequences of non-compliance
  Clarifies that the PCI Council does not itself operate compliance programmes or impose merchant fines.
• Visa — Interchange fees
  Visa’s explanation of interchange and the parties involved in a card transaction.

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About Merchant Advice Service

Merchant Advice Service provides free, independent guidance to businesses looking for help with card payments, payment gateways and more complex payment requirements.

Where appropriate, MAS may introduce a business to a relevant payment provider. We may receive a referral fee or commission if an introduction results in a completed account or service.

MAS does not necessarily compare every provider in the market, and all applications remain subject to the relevant provider’s own assessment, underwriting and approval.

This article provides general payments information and does not constitute legal, regulatory, financial, tax or accounting advice. Card-processing fees, pricing models, VAT treatment, interchange, scheme charges and contractual terms vary according to the provider, transaction and merchant circumstances.