Credit and debit card fees and how to reduce them
If you accept credit or debit card payments, these will incur several transaction fees. Find out how to keep costs to a minimum.
Does your business accept credit or debit card payments? If so, you’ll be paying card charges. From transaction fees to monthly service charges, there are several merchant fees for credit and debit cards to be aware of. This article will walk you through the different types of card charges and how to reduce them.
What are merchant fees for credit and debit cards?Merchant fees refer to the charges paid by the business when a customer makes a card payment. The amount will vary widely depending on several factors, including:
- the card network used (such as Visa, MasterCard and Amex)
- the merchant’s acquirer (ie the business that processes payments on behalf of the merchant)
- the method of payment (for example, was the payment made over the phone or by mail?)
- transaction volumes and values
Types of credit and debit card processing feesCredit and debit card merchant fees include a combination of monthly or one-off payments and transaction fees:A Merchant Service Charge (MSC) or processing fee is a transaction fee typically charged as a percentage of each sale. The rate will depend on the type of card used, with commercial credit cards costlier than debit cards. Interchange fees are included in this category and are charged to merchants directly.Payment gateway fees might be charged at a flat monthly rate or per transaction. Fixed rates typically include a standard number of transactions. If your business handles online card payments, you’ll need a payment gateway to handle the transaction. It acts as a third party to communicate between the cardholder’s bank and your merchant account.Authorisation fees cover the cost of card authorisation. This refers to the process of testing the customer’s card details to make sure they are valid.PCI compliance fees cover an important security feature. All UK businesses accepting card payments must comply with the Payment Card Industry Data Security Standard (PCI DSS). This ensures that customer data is stored and transmitted safely.Chargeback fees are costs incurred when a transaction is reversed. Customers might ask for a chargeback for transactions they don’t approve of or recognise, and the bank often sides with the customer.Card-not-present fees apply to card-not-present transactions. If a customer pays by phone or online, the bank takes on greater risk, therefore charges a higher transaction fee.Minimum Monthly Service Charge (MMSC) ensures that card processors turn a profit. The MMSC acts as a safeguard for the processing provider for months with low sales. The charge only applies if your monthly transaction fees haven’t met the minimum threshold.Administration costs include fees for account set-up and early termination.
How much are credit and debit card fees?Now that we’ve covered the various types of credit card charges for businesses, how much does each cost? While these will vary by provider and card type, here’s a rough breakdown of what to expect for each transaction:
- Merchant Service Charge (MSC): anywhere from 0.25%–3% depending on card type and card issuer.
- Interchange fees: 0.2% for debit cards and 0.3% for credit cards
- Card-not-present transaction: varies, but will be more expensive than other transactions
- Minimum Monthly Service Charge (MMSC): £5–£25 per month (when a minimum threshold isn’t met)
- Online payment gateway fees: varies, but typically £20–£75 per month for hosted checkout pages
- Authorisation fees: 1–3p per transaction
- PCI compliance fee: £2.50–£5 per month
- Chargeback fee: £10–£20 per customer chargeback
- Setup fee: up to £150 at the start of any contract
- Cancellation fee: typically £115 for early cancellation