Merchant account fees and card processing fees explained – Top providers compared

Last updated on 16 June 2023

In the modern era of digital commerce, having the ability to process credit and debit card payments is crucial for all businesses, big and small. Merchant account providers and card processing services play a pivotal role in facilitating these transactions. This article aims to demystify merchant account fees and card processing fees, alongside a comparison of top providers in the UK market.

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Please note, while we strive to provide the most accurate and current data, rates may vary, and businesses should directly contact providers for specific information.

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Merchant account fees and card processing fees explained

A merchant account is a type of bank account that allows businesses to accept payments in multiple ways, typically debit and credit cards. A payment processor clears and settles transactions by transferring money from the customer’s account to the merchant’s account. For this service, businesses are charged fees that can be broken down into two broad categories:

  1. Transaction Fees: These are charged every time a business processes a card payment. It is often split into three components – the interchange fee (paid to the cardholder’s bank), the scheme fee (paid to the card network like Visa or Mastercard), and the margin or markup fee (paid to the merchant account provider). In general, the total cost per transaction usually ranges from 1% to 3.5% in the UK.
  2. Non-Transaction Fees: These include set up fees, monthly fees, PCI compliance fees, payment gateway fees, chargeback fees, early termination fees, etc. Some providers may include all or some of these in a monthly package, while others may charge them separately.

Now that we have a basic understanding of the fees involved let’s compare some top providers in the UK.

Top merchant account providers in the UK – with fees comparison

ProviderMonthly FeeCredit Card Transaction FeeDebit Card Transaction FeeContract TermsE-commerce Compatible?Take Payments Over the Phone?Take Payments In Person?TrustPilot Score
WorldPayFrom £19.95 (Custom pricing also available)From 2.75% + 20pFrom 0.75%VariesYesYesYes3.6
BarclaycardFrom £201.5%-2.5%0.75%-1.25%VariesYesYesYes4.1
PayPal£02.9% + 30p2.9% + 30pNo ongoing contractYesYes (with PayPal Here)Yes (with PayPal Here)4.3
Stripe£01.4% + 20p (European Cards), 2.9% + 20p (Non-European Cards)1.4% + 20p (European Cards), 2.9% + 20p (Non-European Cards)No ongoing contractYesYes (with Stripe Payments)Yes (with Stripe Terminal)4.6
Square£01.75% (in-person), 2.5% (online or keyed-in)1.75% (in-person), 2.5% (online or keyed-in)No ongoing contractYesYesYes4.5
SumUp£01.69%1.69%No ongoing contractYesYesYes4.5
Merchant account fees compared

Please note, this table provides a basic comparison based on standard charges. Rates may vary depending on your business’s specific circumstances, including the number of transactions, your industry, and whether you are a new or established business. For the most accurate and current information, it’s recommended to contact each provider directly.

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HSBC Business Banking
✓ Business Current Account
✓ In-Branch, Online & App Banking
✓ FSCS Protected
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Metro Business Banking
✓ Business Current Account
✓ High Street Presence
✓ FSCS Protected
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Mettle Business Banking
✓ Business Bank Account
✓ Online & App
✓ Quick & Easy Application Process
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Monzo Business Banking
✓ Business Current Account
✓ Dedicated mobile app experience
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Virgin Money
✓ Business M Account
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✓ Insights & Forecasting Platform
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WorldPay

As one of the biggest payment service providers globally, WorldPay offers custom pricing depending on your business size and volume. However, as a general rule, transaction fees start from around 2.75% + 20p for credit cards and 0.75% for debit cards. They also offer a monthly plan at £19.95 that lowers these rates. Non-transaction fees may apply, such as a PCI management fee.

Barclaycard

Barclaycard, a highly reputable bank, offers merchant services with fees varying depending on the business. Typically, credit card transaction fees range from 1.5% to 2.5% and debit card fees from 0.75% to 1.25%. They also charge a minimum monthly service charge starting from £20 and a chargeback fee of £15.

PayPal

PayPal‘s transaction fees are 2.9% + 30p per transaction for sales within the UK, with reduced rates (1.9% + 30p) for businesses with higher sales volumes. However, PayPal doesn’t charge setup, monthly or cancellation fees, making it an appealing choice for small businesses.

Stripe

Stripe charges a straightforward 1.4% + 20p per transaction for European cards and 2.9% + 20p for non-European cards. Like PayPal, Stripe has no setup, monthly or cancellation fees, and its simplicity is often appreciated by startups.

Square

Square offers 1.75% per Chip and PIN or contactless payment for face-to-face sales and 2.5% for online or keyed-in transactions. Square has no monthly fees, and it also provides a free card reader.

SumUp

SumUp charges a flat 1.69% per transaction with no monthly fees or contractual obligations. They provide a free app but charge for their card readers.

Tips for choosing a merchant account

When choosing a merchant account and card processing provider, consider your business’s specific needs, including your sales volume, whether transactions are in-person or online, and the level of customer service required.

Consider not only the costs but also the provider’s reputation and reliability. Remember, the cheapest provider is not always the best fit for every business. Always read the contract terms carefully and seek advice if necessary.

Taking payments online, over the phone, and in person

In the increasingly diverse commerce landscape, businesses often need to accept payments through multiple channels, each with its own implications for merchant accounts and card processing fees. Let’s explore these three common payment channels.

1. Online payments

E-commerce is a significant part of the UK economy, and it’s growing every year. To accept payments online, you’ll need a merchant account and a payment gateway, which is a software that integrates with your website or e-commerce platform to process online transactions. Payment gateways encrypt sensitive card data and facilitate transaction authorisation.

Providers like Stripe and PayPal are popular choices due to their seamless integrations with major e-commerce platforms and relatively straightforward fee structures. However, for businesses with large transaction volumes, dedicated merchant account providers like WorldPay or Barclaycard may offer lower transaction fees.

2. Over-the-phone payments

Also known as MOTO (Mail Order/Telephone Order) payments, these involve the customer providing their card details over the phone. It requires a virtual terminal, a web-based application that lets you enter card details manually. This can be a more expensive payment method because it’s considered riskier due to the higher potential for fraud.

WorldPay offers a specific package for MOTO payments. Stripe, Square, and PayPal also provide virtual terminals, but transaction fees are typically higher than for in-person or online payments.

3. In-person payments

For traditional brick-and-mortar businesses, accepting in-person payments means you’ll need a card reader or POS (Point of Sale) system in addition to your merchant account. In-person payments are typically the least expensive to process because they’re considered less risky; the customer is right there with their card.

WorldPay, Barclaycard, Square, and SumUp all offer comprehensive solutions for in-person payments. Notably, Square and SumUp stand out for their competitive rates and simplicity. They provide an all-in-one solution with their own card readers and straightforward flat-rate pricing, making them particularly suitable for small businesses and pop-up stores.

Choosing a provider will depend on how your business operates. Many businesses will need a combination of the above. As your business evolves, so too might your mix of in-person, phone, and online sales, so a flexible provider that can cater to all these needs will be a huge asset.

What other products and services do merchant services providers offer as add-ons?

Beyond the basics of a merchant account and payment processing, many providers offer a suite of additional products and services to support your business operations. These add-ons often come with an additional cost, but they can add value by increasing efficiency, enhancing security, and improving customer experience. Here are some common offerings:

1. Payment gateways

For businesses selling online, a payment gateway is often necessary. It encrypts and processes online transactions, facilitating secure e-commerce. Some providers, like Stripe and PayPal, have their own integrated gateways. Others, like WorldPay, offer it as an add-on.

2. Point of Sale (POS) systems

These are advanced systems that not only process payments but also handle tasks like inventory management, sales analytics, employee management, and customer relationship management. Square, for instance, offers a range of POS systems for different types of businesses.

3. Virtual terminals

If you take payments over the phone or by mail, a virtual terminal allows you to manually enter card details into a secure web page for processing. Many providers, including WorldPay and Stripe, offer virtual terminals as an additional service.

4. Card machines

For physical retail locations, providers offer a variety of card machines. This includes traditional countertop card readers, portable devices for table-side payments, and mobile card readers that connect to a smartphone for payments on the go.

5. Fraud prevention and security services

Advanced security services are often available, providing features like fraud monitoring and prevention, secure customer data storage, and extra PCI compliance support.

6. Multi-currency and international payments

If you do business internationally, look for providers offering multi-currency and cross-border payment support. Services like dynamic currency conversion can enhance the shopping experience for your international customers.

7. Integrated payments

Some providers offer integration with other business software, such as accounting systems, CRM platforms, or e-commerce platforms. This can streamline operations and improve data accuracy.

8. Merchant cash advance

Some providers, such as WorldPay, offer a merchant cash advance service. This is a type of financing where you get a lump sum in exchange for a percentage of future card sales, providing a flexible way to raise capital for your business.

Remember, while these add-ons can provide value, they also come with costs. It’s important to assess each offering carefully to ensure it’s a good fit for your business needs and budget.

FAQ

What is a merchant account?

A merchant account is a type of bank account that allows a business to accept payments via debit and credit cards. It acts as an intermediary between the business’s bank account and the customer’s card issuer to facilitate the transfer of funds.

What is a payment processor?

A payment processor is a company (often a third party) appointed by a merchant to handle transactions from various channels such as credit and debit cards for merchant acquiring banks.

How much does it cost to process card payments?

The cost to process card payments can vary widely depending on the provider, the size of your business, your sales volume, and the nature of your transactions. Fees typically include a percentage of each transaction (ranging from around 1% to 3.5%) plus a fixed fee per transaction.

What is the difference between a payment gateway and a payment processor?

A payment processor executes the transaction by transmitting data between the merchant, the issuing bank, and the acquiring bank. A payment gateway, on the other hand, is a tool that communicates the approval or decline of the transaction between the website and the bank.

Can I switch my merchant account provider?

Yes, you can switch your merchant account provider if you’re not satisfied with your current service or if you find a provider that offers better value. However, check the terms of your contract to see if there are any early termination fees or other penalties for switching.

How can I negotiate the fees with a provider?

Merchant services fees can often be negotiated, especially if your business has a high volume of transactions. To negotiate effectively, it’s essential to understand the fee structure and be able to articulate why the provider should offer you a discount.

How can I avoid hidden fees?

The key to avoiding hidden fees is to read the terms and conditions carefully, ask the provider to explain all charges, and review your statements regularly. Be particularly wary of fees for services you don’t need or use.

What is a chargeback fee?

A chargeback fee is charged by the provider when a customer disputes a charge on their card and it’s returned to the cardholder’s bank. Chargebacks can be costly as they often include the original transaction amount, a penalty fee, and administrative costs.

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