A guide to credit card charges for businesses

What is a merchant service provider?

For your business to be able to accept credit card (and debit card) transactions online or by card machine, you will need to find a merchant service provider. A merchant service provider will supply you with the hardware (such as point-of-sale terminals) and the software required to facilitate card payments.

You will need to open a merchant account to accept the funds from your customers’ card transactions. Then the money will be transferred to your regular business bank account.

How much do credit card transactions cost businesses?

There isn’t a set amount that credit card processing companies and merchant service providers charge businesses.

Each company offers different rates, and how much they charge your business can vary depending on factors including (but not limited to):

• how your customers pay you (e.g. online or in store)
• the number of card terminals you have
• your turnover rate for card payments
• the type of credit card the customer pays with

Tip: Make sure you do your research to compare different credit card processing companies before you sign up. Each one offers different packages and prices, so it’s worth shopping around, to find one that suits your business needs and budget.

Do debit cards have processing fees? 

Yes, debit cards do also have processing fees. However, these tend to be slightly lower than credit cards.

What fees and charges will you pay? 

Although costs can vary, we’ve rounded up a list of the fees and charges you can expect to pay your card processing company, to give you a rough idea. Some are paid upfront and some are ongoing as explained below.

1. One-off set up fee 

Some credit card companies charge a one-off setup fee, a bit like your joining fee when you sign up to a gym. This is usually somewhere between £50 and £150.

2. Terminal hire costs 

These costs will only apply if you’re going to be taking card payments from customers in person. If you’re only accepting online payments, then you won’t need to have a point-of-sale system (POS) - better known as a chip and pin machine - to take credit card payments.

Traditional POS systems require an internet connection to function. However, it is possible to sync them up with an app if you’re business is on the go, meaning you don’t have to have a fixed premises to take payments in person (as long as you have a Wi-Fi connection).

The cost of a terminal varies between around £14 and £24, depending on the features that come with it. Point-of-sale systems that offer cashback or are mobile, for example, tend to be more expensive. Businesses like restaurants tend to need multiple terminals, whereas a shop may only need one.

3. Merchant service charges 

While the setup fee and terminal hire are upfront costs, merchant service charges are ongoing. These fees are taken on every credit and debit card transaction your business accepts. These tend to be between a percentage of the transaction, depending on the type of card used (debit cards are usually lower than credit cards).

4. Payment gateway fees

You will need a payment gateway if you want to accept card payments online or via the phone. It essentially replaces the physical terminal. It can cost around £20 per month, but this will depend on the provider you use.

5. Authorisation fees 

Authorisation fees are the charges for the very first step of the card payment processing process: when the card issuer confirms the customer can make the payment. This charge will be taken on each credit card payment and is generally between one and three pence per transaction.

6. Minimum monthly service charge (MMSC) 

Minimum monthly service charges tend to be around £10 to £20 per month and are only applied if your transactions fall below a certain threshold (and your other fees do not exceed this minimum). Exactly how much your MMSC will be will depend on your contract with your processing provider.

7. Chargeback fees 

A chargeback fee is essentially an admin expense when a customer’s card is refunded. These tend to range between £10 to £20 per chargeback.

8. Payment Card Industry (PCI) compliance fee 

Last but not least, the PCI compliance fee. This is a small monthly administration fee, (between around £2 and £5 per month) and is to ensure your business is compliant and for a certificate saying so.

What is the best card machine for a small business? 

Which card machine is the best for you will depend on your business. If you’re looking for the cheapest option, a mobile card reader from a payment facilitator may be helpful. However, these tend to only be suitable for businesses with smaller turnovers.

For medium-sized businesses, getting a contract with a merchant services provider and hiring (or buying outright) POS systems could be worth looking into.

Is it legal to surcharge on credit cards? 

No, as of January 2018, a UK Government ban has been in place on debit and credit card surcharges to pass on credit card fees to customers. It is now “unlawful for retailers to charge additional fees when someone uses a particular credit or debit card, or other payment systems like PayPal, to make a purchase.”

How can I reduce my merchant fees? 

One of the best ways to ensure you’re getting a good deal with your merchant fees is to shop around when you first choose a provider. Having all the information above to hand about the various costs, as well as considering exactly what services your business requires when it comes to credit card payment processing, will help you find the most suitable provider for you.

If you’ve already chosen a provider, there’s no harm in trying to re-negotiate your deal with them if you think you’re paying too much.

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