Merchant Account Fees Explained

Understanding Merchant Account Fees

Merchant account pricing can seem deliberately confusing. Providers advertise headline rates while burying additional fees in contracts. This guide breaks down every fee type you’ll encounter when accepting card payments in the UK.

Transaction Fees (The Main Cost)

Transaction fees are charged every time a customer pays by card. This is your largest ongoing cost.

How Transaction Fees Work

Structure: Percentage of transaction value + fixed fee per transaction

Example: 1.75% + 20p per transaction

If a customer pays £100:

• Percentage fee: £100 × 1.75% = £1.75
• Fixed fee: 20p
• Total fee: £1.95
• You receive: £98.05

What Affects Your Transaction Fee Rate

Your industry: Retail, hospitality, and service businesses get standard rates. High-risk industries (CBD, gaming, supplements, travel) pay higher percentages due to increased chargeback risk.

Monthly processing volume: Higher volumes secure better rates. A business processing £50,000 monthly gets significantly better rates than one processing £5,000 monthly.

Card type: Debit cards cost less to process than credit cards. Business cards and premium cards (like Amex) typically have higher interchange fees.

Transaction method:

• Chip and PIN: Standard rates
• Contactless: Same as chip and PIN
• Card-not-present (online/phone): Slightly higher due to fraud risk
• Keyed entry: Highest rates due to fraud risk

Your processing history: New businesses get standard rates. After 12 months of clean processing (low chargebacks, consistent volumes), you can negotiate better rates.

Transaction Fee Pricing Models

Flat-rate pricing: One percentage applies to all transactions regardless of card type. Simple but often more expensive for high-volume businesses.

Example: SumUp charges 1.69% for all card types.

Interchange-plus pricing: You pay actual interchange cost plus a small fixed markup. More complex but often cheaper for businesses processing £10,000+ monthly.

Example: Interchange cost (varies by card) + 0.3% + 10p per transaction.

Tiered pricing: Different rates for qualified, mid-qualified, and non-qualified transactions. Can be confusing and often disadvantageous for merchants.

Monthly Service Fees

Fixed monthly charges for maintaining your merchant account and accessing payment services.

What Monthly Fees Cover

• Payment gateway access
• Transaction reporting and analytics
• Customer support
• Account maintenance
• PCI compliance tools (sometimes separate)
• Virtual terminal access (if applicable)

Monthly Fee Structures

No monthly fee: Pay-as-you-go providers (SumUp, Square, Zettle) charge zero monthly fees. Transaction percentages are slightly higher to compensate.

Low monthly fee (£0-£30): Small fixed monthly charge with competitive transaction rates. Often better for businesses processing £5,000+ monthly.

Tiered monthly fees (£30-£100+): Higher monthly fees typically come with lower transaction percentages, advanced features, or dedicated support. Best for high-volume businesses.

When Monthly Fees Make Sense

Calculate the crossover point:

Scenario A – No monthly fee: 1.75% transaction rate

Processing £10,000 monthly = £175 in fees

Scenario B – £20 monthly fee: 1.3% transaction rate + £20 monthly

Processing £10,000 monthly = £130 + £20 = £150 in fees

Result: Scenario B saves £25 monthly (£300 annually)

At £10,000 monthly volume, paying a small monthly fee often reduces total costs if it secures lower transaction percentages.

Setup and Onboarding Fees

One-time charges for establishing your merchant account.

Common Setup Fees

Application fee: Charged by some providers for processing your application. Typically £0-£150.

Setup fee: Account configuration and activation. Ranges from £0-£300.

Integration fee: If connecting to EPOS, accounting software, or e-commerce platform. Can be £0-£500 depending on complexity.

Training fee: Staff training on using terminals and processing payments. Sometimes included free, sometimes £50-£200.

How to Avoid Setup Fees

Pay-as-you-go providers: SumUp, Square, Zettle charge zero setup fees.

Referral partners: Working with payment consultants like We Tranxact often results in waived setup fees through provider partnerships.

Volume commitment: Agreeing to process minimum monthly volumes can result in waived fees.

Negotiation: Setup fees are often negotiable, especially for established businesses with strong financials.

PCI Compliance Fees

Charges related to maintaining Payment Card Industry Data Security Standards compliance.

What PCI Compliance Involves

PCI-DSS requires businesses accepting card payments to follow security standards protecting cardholder data. This includes:

• Secure payment processing systems
• Regular security scans
• Annual compliance questionnaires
• Vulnerability assessments

PCI Compliance Fee Structures

Included in package: Many providers include PCI compliance at no additional charge.

Annual fee: £50-£200 per year for compliance management and reporting.

Monthly fee: £5-£20 per month for ongoing compliance support.

Non-compliance penalty: Some providers charge £10-£50 monthly if you don’t complete annual compliance requirements.

Who Pays PCI Fees

All businesses accepting card payments must be PCI compliant. However, whether you pay separate fees depends on your provider:

• Pay-as-you-go providers: Usually include compliance at no extra charge
• Traditional providers: Some include it, some charge separately
• High-risk accounts: More likely to have separate PCI fees

Always ask: “Is PCI compliance included or charged separately?”

Chargeback Fees

Fees charged when customers dispute transactions and request refunds from their card issuer.

How Chargebacks Work

A customer disputes a charge with their bank. The bank initiates a chargeback:

1. Transaction amount is immediately withdrawn from your account
2. You’re charged a chargeback fee (£15-£30)
3. You have 7-14 days to respond with evidence
4. If you win, funds are returned (fee is not)
5. If you lose, you keep the loss plus the fee

Chargeback Fee Structure

Standard fee: £15-£30 per chargeback regardless of outcome

High chargeback ratio penalties: If your chargeback ratio exceeds 0.65% (standard accounts) or 1-2% (high-risk accounts), providers may:

• Increase transaction fees
• Implement rolling reserves
• Add monthly monitoring fees (£50-£200)
• Terminate your account (worst case)

Minimizing Chargeback Fees

• Clear product descriptions: Accurate website information prevents “not as described” disputes
• Transparent billing: Ensure customers recognize charges on statements
• Good customer service: Resolve complaints before customers contact banks
• Clear refund policy: Make returns easy to avoid chargebacks
• Proof of delivery: Keep shipping confirmations and tracking
• Detailed receipts: Clear transaction records help dispute resolution

Terminal Fees

Costs associated with the physical card payment terminals.

Purchase vs Rental

Purchasing terminals:

• One-time cost: £100-£400 depending on type
• You own the equipment
• No ongoing rental fees
• You’re responsible for repairs after warranty
• Best for established businesses planning long-term use

Renting terminals:

• Monthly cost: £10-£40 depending on type
• Provider owns the equipment
• Provider replaces faulty terminals
• Ongoing cost adds up over time
• Best for new businesses or those testing payment processing

Terminal Cost Comparison (2 Years)

Purchase portable terminal: £200 upfront = £200 total

Rent portable terminal: £25/month × 24 months = £600 total

Savings from purchasing: £400 over 2 years

For businesses planning to accept card payments long-term, purchasing terminals almost always costs less than renting.

Terminal-Related Fees

Paper rolls: £10-£20 per box (lasts 1-2 months typically)

SIM card fees (mobile terminals): £5-£10 monthly for GPRS connectivity

Replacement fees: If you damage a rented terminal, replacement can cost £100-£300

Upgrade fees: Upgrading to newer terminal models may incur charges

Additional Fees to Watch For

Minimum Monthly Processing Fee

Some providers charge a minimum fee if you don’t process enough transactions monthly.

Example: £25 minimum monthly fee. If your transaction fees only total £15, you’re charged an additional £10 to reach the minimum.

Impact: Severely affects low-volume or seasonal businesses.

Solution: Choose providers without minimum processing requirements if your volumes are low or inconsistent.

Statement and Reporting Fees

Monthly or quarterly fees for account statements and transaction reporting.

Typical cost: £0-£10 monthly

Often included: Most modern providers include reporting at no charge

Watch for: Paper statement fees (£5-£10 if you request physical statements)

Account Maintenance Fees

Annual or quarterly fees for maintaining your merchant account.

Typical cost: £0-£50 annually

Often hidden: Buried in contracts as “annual account fee” or “gateway maintenance fee”

Early Termination Fees

Penalties for closing your account before contract term ends.

Typical cost: £200-£1,000 or remaining months of contract

Example: 3-year contract, leave after 18 months = 18 months × monthly fee as penalty

Critical: Always check exit clauses before signing contracts. Monthly rolling contracts avoid this risk.

Refund Processing Fees

Some providers charge fees for processing refunds to customers.

Typical cost: £0-£0.50 per refund

Usually: Not charged by reputable providers

Watch for: High-risk account providers more likely to charge refund fees

Currency Conversion Fees

Charges for processing non-GBP transactions (euros, dollars, etc.)

Typical cost: 1-3% above standard transaction fee

Relevant for: Businesses serving international customers or tourists

Example: Standard fee 1.5%, non-sterling 2.5% (1% premium)

Batch Fees

Charges for settling daily transaction batches with some traditional providers.

Typical cost: £0-£0.25 per batch

Often: Not charged by modern providers

Legacy fee: More common with older payment systems

AVS and CVV Verification Fees

Charges for address verification system and card verification value checks on card-not-present transactions.

Typical cost: £0-£0.10 per verification

Purpose: Fraud prevention for online/phone orders

Usually: Included in card-not-present transaction rates

How to Calculate Your True Total Costs

Your effective rate includes ALL costs, not just the advertised transaction percentage. This is the number to compare across providers.

Common Fee-Related Mistakes

Mistake 1: Comparing Headline Rates Only

Provider A advertises 1.5% transaction fees. Provider B advertises 1.75%.

You choose Provider A assuming it’s cheaper. But Provider A has:

• £50 monthly fee
• £200 annual PCI fee
• £20 minimum monthly processing fee

Provider B has:

• £0 monthly fees
• PCI included
• No minimums

At £10,000 monthly processing:

• Provider A: (£10,000 × 1.5%) + £50 + £16.67 PCI = £216.67/month
• Provider B: £10,000 × 1.75% = £175/month

Provider B is £41.67/month cheaper despite higher headline rate.

Mistake 2: Not Reading the Full Contract

Hidden fees often buried in contracts:

• Early termination penalties
• Automatic price increases (annual rate hikes)
• Minimum processing requirements
• Statement fees
• Batch fees

Always request the complete fee schedule before signing.

Mistake 3: Ignoring Volume-Based Discounts

As your business grows, your transaction rates should decrease. Many businesses never renegotiate or review rates after the first year.

Action: After 12 months of consistent processing, approach your provider about volume-based discounts or compare competitor offerings.

Mistake 4: Accepting “Free” Equipment Without Calculating Total Cost

“Free card machine!” often means:

• Higher transaction percentages
• Longer contract terms
• Higher monthly fees

Calculate 24-month total costs including all fees to see if “free” equipment actually saves money.

Mistake 5: Not Understanding Chargeback Impacts

Each chargeback costs £15-£30 in fees plus the transaction amount. But more importantly, high chargeback ratios can:

• Trigger account reviews
• Result in increased fees
• Lead to rolling reserves being implemented
• Cause account termination

Preventing chargebacks saves more than just the immediate fee.

Questions to Ask Before Signing

How We Tranxact Helps You Understand and Reduce Fees

Rather than navigating complex fee structures alone, we help UK businesses:

• Understand complete costs: We calculate your effective rate including all fees at your specific volumes
• Compare multiple providers: We obtain detailed fee schedules from several providers for transparent comparison
• Identify hidden fees: We review contracts to highlight fees providers don’t advertise prominently
• Negotiate on your behalf: Our provider relationships often result in waived setup fees and competitive rates
• Explain complex pricing: We translate payment processing jargon into clear cost breakdowns

Our service is provided at no cost to clients – we’re compensated by providers when we refer businesses, so our advice remains independent.

Reference Data

For comprehensive UK payment processing costs, timelines, and provider comparisons, view our complete UK payment processing data reference guide.

Merchant Account Fees – Frequently Asked Questions

What is the average merchant account fee in the UK?

Transaction fees typically range from 1.4% to 2.5% depending on your industry, volumes, and provider. Monthly fees range from £0 to £100. The average small business processing £10,000 monthly pays an effective rate of 1.8-2.3% when all fees are included.

Can I negotiate merchant account fees?

Yes, especially after 12 months of clean processing history with low chargebacks. Businesses processing £10,000+ monthly have good negotiating leverage. Presenting competitive quotes from other providers strengthens your negotiation position significantly.

Do all merchant accounts have monthly fees?

No. Pay-as-you-go providers like SumUp, Square, and Zettle charge zero monthly fees. Traditional merchant account providers may charge monthly fees but often offer lower transaction percentages. Whether monthly fees benefit you depends on your processing volume.

What fees do high-risk merchant accounts have?

High-risk accounts typically have higher transaction fees (2.0-4.0% vs 1.4-2.0%), rolling reserves (5-10% of transactions held), potentially higher monthly fees, and longer approval times. Chargeback fees are similar (£15-£30) but tolerance for chargebacks is higher (up to 2% vs 0.65%).

Are chargeback fees refundable if I win the dispute?

No. Chargeback fees (£15-£30) are charged regardless of dispute outcome. Even if you successfully dispute a chargeback and funds are returned, the chargeback fee itself is not refunded. This is why preventing chargebacks is more cost-effective than winning disputes.

How can I reduce my merchant account fees?

Strategies include: comparing multiple providers annually, negotiating rates after building processing history, increasing monthly volumes for volume-based discounts, maintaining low chargeback ratios (under 0.5%), purchasing terminals instead of renting, and ensuring PCI compliance to avoid penalties.

What is an interchange-plus fee structure?

Interchange-plus pricing charges you the actual interchange cost (fee paid to card-issuing banks, which varies by card type) plus a small fixed markup and per-transaction fee. This is often cheaper for high-volume businesses than flat-rate pricing but requires more complex fee calculation.

Are there fees for refunding customers?

Most reputable providers don’t charge refund processing fees. However, you don’t get the original transaction fee refunded – if you paid 1.75% on a £100 sale (£1.75 fee) and refund it, you’ve lost £1.75. Some high-risk providers charge £0.25-£0.50 per refund processed.

What happens if I exceed my processing limits?

New accounts often have monthly processing limits that increase over time. Exceeding limits may trigger account reviews, temporary holds on settlements, or requests for additional documentation. Established businesses rarely face processing limits unless flagged for unusual activity.

Can providers increase my fees without notice?

Contract terms determine this. Most contracts allow annual rate increases with 30-90 days notice. Some contracts include automatic annual increases tied to inflation or interchange rate changes. Always check contract terms regarding rate changes before signing.

Related Payment Processing Guides

• How Much Does a Card Machine Cost UK
• High-Risk Merchant Account Costs
• Standard Merchant Account Guide UK
• How to Get a Merchant Account UK
• Card Machine Provider Comparison
• Payment Processing Glossary

UK Payment Industry Resources

• UK Finance – Payment Standards
• Financial Conduct Authority – Payment Services
• Visa UK
• Mastercard UK
• PCI Security Standards Council

Understand Your True Payment Processing Costs

Stop guessing about merchant account fees. We help UK businesses understand complete fee structures, compare multiple provider quotes, and identify opportunities to reduce payment processing costs.