Merchant Guide
How Do Card Machine Fees Work? UK Merchant Guide
A plain-English breakdown of every fee involved in accepting card payments, so you can compare providers and keep more of what you earn.
How is a card payment processed?
When a customer taps, inserts, or swipes their card at your terminal, a chain of events happens in under two seconds. Understanding this chain is the key to understanding the fees you pay.
Customer pays
The cardholder presents their card (contactless, chip & PIN, or swipe) at your payment terminal.
Acquirer receives
Your payment processor (the acquirer) receives the transaction data from the terminal and forwards it to the card scheme network.
Card scheme routes
The card scheme (Visa or Mastercard) routes the transaction to the issuing bank — the bank that issued the customer's card.
Issuer authorises
The issuing bank checks the cardholder's account, verifies funds or credit, runs fraud checks, and sends back an approval or decline.
Merchant gets paid
The approved transaction is settled. The acquirer deposits the funds into your business bank account, minus the processing fees.
Four parties are involved in every transaction: the cardholder, the merchant (you), the issuing bank, and the acquiring bank. The card scheme (Visa, Mastercard, Amex) sits in the middle, connecting issuers and acquirers. Each party takes a small share of the transaction cost.
What fees are involved in card processing?
The total cost of processing a card payment is made up of three distinct components. When a provider quotes you a single percentage, all three are bundled together. Understanding the breakdown helps you negotiate better rates.
1. Interchange fee
This is the largest component. It is paid to the issuing bank (the customer's bank) as compensation for the risk of extending credit or guaranteeing the payment. Interchange rates are set by Visa and Mastercard and vary by card type, merchant category, and how the transaction is processed.
In the UK, the Interchange Fee Regulation (IFR) caps consumer card interchange at 0.2% for debit and 0.3% for credit. However, commercial cards, international cards, and certain premium cards are not subject to these caps and can carry interchange rates of 1.5% or more.
2. Scheme fee
This is a fee charged by the card scheme itself (Visa or Mastercard) for using their network to route and settle the transaction. Scheme fees are typically small — often between 0.02% and 0.15% per transaction — but they add up over high volumes. Visa and Mastercard publish their scheme fee schedules, though they update them regularly and the structure can be complex.
3. Acquirer margin
This is the markup charged by your payment processor (the acquirer) for their services — providing the terminal, processing transactions, settling funds to your account, and handling chargebacks. This is the only component you can negotiate directly. Typical acquirer margins range from 0.1% to 0.5% on top of interchange and scheme fees.
What are typical card processing rates in the UK?
The table below shows typical all-in rates (interchange + scheme fee + acquirer margin) that UK businesses can expect to pay in 2025. Actual rates depend on your industry, monthly volume, average transaction size, and the pricing model you choose.
| Card type | Typical rate | Notes |
|---|---|---|
| UK consumer debit (Visa/MC) | 0.3% – 0.5% | Lowest cost. Interchange capped at 0.2%. |
| UK consumer credit (Visa/MC) | 0.7% – 1.5% | Interchange capped at 0.3%. |
| Commercial / corporate cards | 1.5% – 2.5% | No interchange cap applies. |
| American Express | 1.5% – 3.0% | Amex acts as both scheme and issuer. |
| International cards | 1.0% – 2.5% | Higher interchange; no UK cap. |
| Contactless (any card type) | Same as card type | No premium for contactless. |
Blended vs interchange++ pricing: which is better?
Payment processors use two main pricing models. The right choice depends on your transaction volume and how much transparency you want.
| Factor | Blended pricing | Interchange++ (IC++) |
|---|---|---|
| How it works | One flat rate for all cards | Interchange + scheme fee + fixed margin |
| Transparency | Low — costs are hidden in the rate | High — every component is visible |
| Best for | Very small businesses (< £5k/month) | Businesses processing > £5k/month |
| Debit transactions | You overpay significantly | You pay near-actual cost |
| Predictability | Easy to forecast costs | Costs vary slightly month to month |
| Negotiability | Limited | You can negotiate the margin |
As a general rule, if the majority of your transactions are debit cards (which is the case for most UK retail and hospitality businesses), interchange++ pricing will save you money. A blended rate of 1.5% on a debit card transaction that carries only 0.2% interchange means you are paying over seven times the actual interchange cost.
What hidden fees should you watch out for?
Transaction fees are only part of the picture. Many providers add ancillary charges that can significantly increase your total cost. Here are the most common ones:
- PCI non-compliance fee — A monthly charge (typically £30–£50) applied if you have not completed your annual PCI DSS self-assessment questionnaire.
- Minimum monthly service charge — If your transaction fees in a given month fall below a set threshold (e.g. £25), you pay the difference. This penalises low-volume months.
- Statement fee — A monthly charge for producing your transaction statement, even if it is delivered electronically.
- Gateway fee — A per-transaction or monthly fee for using the provider's payment gateway (mainly for e-commerce).
- Chargeback fee — A fee (typically £15–£25) charged each time a customer disputes a transaction, regardless of the outcome.
- Early termination fee — A penalty for leaving your contract before its end date. Can be several hundred pounds on long-term contracts.
- Terminal rental — Some providers charge monthly terminal rental on top of transaction fees. Others include the terminal for free.
Before signing any contract, request a complete fee schedule in writing. A reputable provider will be transparent about every charge.
How to compare card machine providers
Comparing providers on headline transaction rates alone is misleading. Here is what to evaluate:
- 1
Request an all-in cost breakdown
Ask each provider for a full monthly cost estimate based on your actual transaction volume and card mix. Include ancillary fees, not just the transaction rate.
- 2
Check the pricing model
Blended or interchange++? If a provider only offers blended pricing, they may be hiding a large margin on debit transactions.
- 3
Understand settlement speed
Next-day settlement is standard. Some providers offer same-day or instant settlement for an additional fee. Slower settlement (T+3 or T+7) ties up your cash flow.
- 4
Review contract length
Flexible rolling contracts are better than 12, 24, or 36-month fixed terms. Ask about early termination penalties.
- 5
Check hardware costs
Is the terminal free, rented, or purchased outright? Who owns the hardware? What happens to it if you cancel?
- 6
Evaluate support quality
Is support available 24/7? Is it UK-based? What is the average response time? Read reviews from businesses in your sector.
How can you reduce your card processing fees?
Encourage debit and contactless payments
Debit interchange is capped at 0.2% in the UK. The more debit transactions you process, the lower your average cost per transaction.
Switch to interchange++ pricing
If you are on a blended rate and processing more than £5,000 per month, interchange++ will almost certainly be cheaper.
Negotiate based on volume
If your monthly card turnover exceeds £10,000, you have leverage. Ask your provider for a volume discount on the acquirer margin.
Avoid manual key entry
Keyed-in transactions (where you type the card number) carry higher interchange because they are higher risk. Always use chip & PIN or contactless where possible.
Stay PCI compliant
Complete your PCI DSS self-assessment questionnaire annually. This avoids the £30–£50 monthly non-compliance surcharge that many providers apply.
Review your statement monthly
Look for unexpected charges, rate changes, or new fees. Providers sometimes introduce fees mid-contract with minimal notice.
Transparent pricing, no hidden fees
United Payments offers competitive transaction rates with no PCI fees, no statement fees, and no early termination penalties. Free terminal with every merchant account.
Get a Free QuoteFrequently Asked Questions
Interchange is a fee paid by the acquiring bank (your payment processor) to the issuing bank (the customer's bank) every time a card transaction is processed. The rates are set by the card schemes (Visa and Mastercard) and vary by card type, transaction method, and merchant category. In the EU and UK, interchange is capped by regulation at 0.2% for consumer debit cards and 0.3% for consumer credit cards.
Blended pricing charges a single flat rate for all card types (e.g. 1.5% for everything). It is simple to understand but you overpay on cheap debit transactions. Interchange++ pricing breaks the cost into three transparent components: interchange + scheme fee + acquirer margin. You pay the actual cost of each transaction plus a fixed markup. Interchange++ is almost always cheaper for businesses processing over £5,000 per month.
Credit card transactions carry higher interchange fees because the issuing bank extends credit to the cardholder and assumes the risk of non-payment. Debit transactions draw directly from the customer's bank account, so the risk to the issuer is much lower. UK-regulated interchange for consumer debit is capped at 0.2%, while consumer credit is capped at 0.3%.
Common hidden fees include PCI non-compliance charges (typically £30-£50/month if you haven't completed your PCI DSS self-assessment), minimum monthly service charges (a fee if your transaction volume falls below a threshold), statement fees, gateway fees, and early termination penalties. Always ask for a full fee schedule before signing a contract.
Encourage contactless and debit card payments (lower interchange). Use chip & PIN or contactless rather than manual key entry (lower risk = lower fees). Negotiate volume-based rates if you process over £10,000/month. Switch from blended to interchange++ pricing. Ensure PCI DSS compliance to avoid monthly surcharges. Review your statement regularly for unexpected charges.
Get Started
Ready to Transform Your Business?
Call us directly or fill out the form — we'll find the perfect solution for you.
0333 567 3568
Free consultation call
Next-day setup
Get up and running in 24 hours
No lock-in contracts
Flexible terms, cancel anytime
24/7 UK support
Real people, real help