Merchant Account Fees Explained
Understanding your card processing costs can be a real headache, but not doing so can eat away at your bottom-line and reduce your profit margins. Here we look at the individual types of card payments charges, what they mean and how they work whilst providing tips on things to look out for to help you to make informed decisions.
Before we get into it…
It’s important to understand that many card payments costs vary between provider and are often negotiable. There are many elements of your business which will affect the pricing you are offered, including:
- Industry type
- Trading history
- Method in which you take payments; i.e MOTO, Face-to-face via a card machine or ecommerce.
- Chargeback rates
- Types of card you accept; for instance consumer credit cards are cheaper than commercial
- Location; accepting card payments from international clients
If you think you might be getting offered a bad deal get in touch with us and we’ll put you in touch with somebody that can offer something better. We won’t charge you a single penny for the recommendation either.
What does acquirer fees mean?
The biggest part of the transaction cost is normally the acquiring fees, but what are acquiring fees? And why can they be so hefty?
These are the fees charged by the processing bank (known as the acquirer in the world of payments). The costs tend to cover their overheads, with some profit margin, and they bit they add significantly extra in order to try to insure themselves against risk when dealing with higher risk industriesThis means that there is often room for negotiation when it comes to this particular part of the transaction fee. It’s the part our unbiased Brokers love to work on to drive costs down (hint hint).
How much should you pay for acquiring fees?
It’s really difficult to give exact figures, due to the variable factors listed above. However, depending on the risk surrounding your business you can look to pay anything between 0.6% and 6% (reserved for the most high-risk companies) in acquiring costs.
It’s worthwhile noting that costs can be higher if you go through an ISO (independent sales organisation) such as Takepayments, Paymentsense etc. This is due to the fact companies like this add their profit margin onto the acquiring fees – so despite often not charging a fee for their service, commission is paid from the acquirer to the ISO, thus increasing the cost incurred per transaction.
What are interchange fees?
Most banks offer interchange pricing. However, some offer blended rates which include acquiring fees and interchange fees. The interchange costs are the fee which the acquiring bank pays to the card issuer every time a transaction is made. Put simply, the issuer is the customer’s bank; i.e HSBC, Santander, Barclays etc etc. These costs are a fixed cost, so no room for negation here I’m afraid, and normally charged at a percentage rate. Comparatively speaking normally, the smallest/cheapest part of the transaction overhead.
Typical costs for interchange are 0.2% for debit cards and 0.3% for credit, commercial cards (company business cards) are charged slightly higher.
| Charge Type | Interchange Fee |
| Visa me-to-me [UK Domestic, Prepaid- secure and non-secure] | 0.20% |
| Visa Consumer [Credit, Deferred Debit,] | 0.30% |
| Visa Consumer [Debit, Prepaid,] | 0.20% |
| Visa Business Credit and Deferred Debit – Card Present – Contactless | 0.50% |
| Visa Business Credit and Deferred Debit – Card Present – EMV Chip | 0.75% |
| Visa Business Debit and Deferred Debit – Card Not Present | 1.15% |
| Visa Business Debit and Deferred Debit – Standard | 1.15% |
| Visa Corporate – Card Present – Contactless or EMV Chip | 1.60% |
| Visa Corporate – Card Not Present or Standard | 1.90% |
| Mastercard Consumer Credit | 0.30% |
| Mastercard Consumer Debit Debit, Consumer, Consumer Prepaid | 0.20% |
| Mastercard Corporate, Mastercard Electronic Corporate – EMV Chip | 1.50% |
| Mastercard BusinessCard, Mastercard Electronic BusinessCard, Mastercard Professional Card, Mastercard Prepaid Commercial – EMV Chip | 1.25% |
How to get cheap card processing
Despite pricing not being published, most ISO’s and acquiring banks have the ability to negotiate within reason. Card turnover and the profit margins of accepting ongoing transactions has a huge part to play in pricing structure. Understandably you’re going to want to achieve the best price possible, however important elements such as security, functionality and suitability shouldn’t go a miss.
When comparing merchant accounts you should do so on a pound for pound basis – to do so use your transaction statement from your existing provider to see where overheads can be reduced.
Comparing blended rates to IC+ and fixed fees
Transaction fees offered to businesses processing payments fall into four pricing categories;
Blended
(standard pricing) Blended pricing commonly known as standard pricing means that the bank or ISO offer one rate to you the business (merchant). Interchange and scheme fees will not be listed on transaction statements.
Fixed
(fixed pricing) Offered by the likes of Paypal, SumUp and Square (known as payment facilitators) fixed pricing is popular amongst smaller businesses and start-ups, enabling them to plan processing costs effectively. A fixed amount is charged, if transaction turnover stays within limits.
IC +
(interchange plus) Interchange costs relevant to the transaction are automatically passed on to you the business by the acquiring bank. Important note – scheme fees are not always passed on at cost price.
IC ++
(interchange plus plus) Both interchange and scheme fees for transactions are contractually passed onto the business. This means that the acquiring banks cost and profit margin are recovered in the processing fee. The majority of businesses are on standard pricing known as blended rates. Here we look at each costing and what it means.
