Card processing fees explained: keep more of every sale

Every time a customer taps a card, the sale is split between several parties before the money reaches your account. Providers quote a single headline rate, but that number hides three separate charges plus a handful of extras. Once you can see the parts, comparing quotes gets much easier and you keep more of each sale.

A card fee has three parts

The rate you pay is built from three layers. Only one of them is actually set by your provider, which is worth remembering when you sit down to negotiate.

Interchange, paid to the card issuer

Interchange is the slice that goes to the bank that issued your customer's card. It is set by the card schemes and no provider can undercut it. UK consumer card interchange is capped, for example around 0.2 per cent on debit and 0.3 per cent on credit for standard consumer cards. Business cards, commercial cards and cards from overseas usually carry higher interchange, which is why an international customer can cost you more to serve.

Scheme fees, paid to Visa and Mastercard

Scheme fees go to the card networks themselves, Visa and Mastercard, for running the rails your payments travel on. They are small, they vary by card type and transaction, and again no provider sets them. Together with interchange they make up the base cost of accepting a card, the part every provider pays before adding any margin of their own.

The acquirer or provider markup

This is the only part your provider controls, and the only part you can negotiate. The acquirer processes the payment and adds a markup for doing so. When one provider looks cheaper than another for the same card, it is almost always this margin that differs, because interchange and scheme fees are identical for everyone.

Blended pricing versus interchange plus plus

There are two common ways a provider can present the same underlying cost.

Blended pricing

Blended pricing rolls all three parts into one flat rate, for example 1.6 per cent on every transaction whatever the card. It is simple to read and easy to forecast. The trade-off is that you cannot see the margin, and you pay the same rate on a cheap debit card as on an expensive commercial one, so a debit-heavy business often overpays.

Interchange plus plus

Interchange plus plus itemises the bill: interchange, plus scheme fees, plus a fixed provider margin stated separately. For example 0.3 per cent interchange, plus scheme fees, plus 0.4 per cent to the provider. It looks busier on the statement, but you can see exactly what the provider is charging, and that margin does not change when interchange does. For most established businesses with steady volume, it is the clearer of the two.

The costs that hide off the headline rate

The percentage per sale is not the full bill. Ask about these before you sign, because they can outweigh a small difference in the rate.

• Terminal or gateway rental. A monthly charge for the card machine or the online payment gateway, for example 15 to 25 pounds a month per terminal. Some providers sell the hardware outright instead.
• PCI compliance fees. A charge for meeting card security standards, sometimes billed monthly, sometimes as a non-compliance fee if you do not complete the annual paperwork.
• Minimum monthly service charge. If your fees do not reach a set floor, for example 20 pounds, you pay the difference. This bites hardest on low-volume or seasonal businesses.
• Authorisation fees. A few pence per transaction on top of the percentage, charged each time a payment is authorised, whether or not it completes.

How to compare providers like for like

Providers such as Teya, Dojo, myPOS and Worldpay package these charges differently, so the headline rate on its own tells you very little. To compare fairly, put them side by side on the same basis.

• Use your real numbers. Take your actual monthly card turnover and average transaction size, and work out the total cost under each quote, not just the percentage.
• Add every fixed cost. Fold in rental, PCI and any minimum charge, then divide by your turnover to get a true all-in rate.
• Match the card mix. If you take a lot of business or overseas cards, a blended rate can flatter one provider and punish another.
• Check the term and exit fees. A slightly lower rate locked in for four years with an early-exit charge can cost more than a rolling deal.

That like-for-like sum is the work we do for clients on our card payments page. We take your statements, strip out the parts nobody can change, and compare providers on the margin and the extras that they can. If you are weighing up a new machine or moving online, the same card and payments service covers terminals, mobile and online checkout.

The bottom line

A card fee is interchange, scheme fees and a provider margin, and only the margin is up for negotiation. Decide whether blended or interchange plus plus suits your card mix, count the rental, PCI and minimum charges as part of the price, and compare providers on your own turnover rather than their headline rate. Do that and more of every sale stays with you. Read more articles.