Many consumers are transitioning away from paying for things with cash. As such, it’s more important than ever for companies to embrace credit card payments.
Having said that, credit card payments do come with a series of charges. In short, the organization who facilitates each transaction will take a cut of them as payment.
A lot of business owners fail to put thought into credit card processing fees. In fact, they willfully pay whatever the provider asks for without questioning the competitiveness of these rates.
I am going to guess that you are not one of these people based on the fact that you are reading this article.
I will go over what companies are obligated to pay when they accept credit card payments. I will then reveal how to seek out competitive service deals offered by merchants.
What charges/fees are you expected to pay to accept card payments?
Pricing for merchant services is fairly complicated, making it challenging for some merchants to understand exactly how much they spend every month.
In the section below, you can see a brief synopsis of the main charges for processing credit card payments, as well as the fees that come with each transaction.
(For a comprehensive look at credit card charges for small businesses, click here.)
- Merchant Services Charge: this charge represents the fee to be paid for every debit or credit transaction that you process. Debit cards have a charge that ranges between 0.25% and 0.35%. Standard credit cards have charges that range between 0.7% and 0.9%. Business credit cards have a charge that ranges between 1.6% and 1.8%. A premium may be applied if the credit card was issued outside of the European Union, if a payment is processed over the internet, or if a cardholder isn’t present.
- Terminal Hire: This is what you will be charged to rent a PIN and chip device. You can expect to pay between £14 and £16 for countertop terminals that are fixed, £17 to £21 for terminals that are portable, and £20 to £24 pounds for terminals that are mobile.
- Payment Gateway: For those who accept credit card payments either by phone or online, payment gateways will be necessary. They perform the same function that terminals do. You can expect to pay anywhere from 6-10p for each transaction. A fixed cost of approximately £20 each month will also need to be paid, but more often than not, you won’t be charged for the initial 300 transactions.
- Authorization Fees: These are extra charges per transaction to validate a payment method. They vary between 1p and 3p per transaction.
- MMSC (Minimum Monthly Service Charge): This charge is levied if transactions fall under a specific level. If other fees surpass the service charge minimum, the MMCS will be waived. You can expect to pay between £10 and £20 a month.
- Chargeback Fees: This administrative fee is charged each time chargebacks are requested by customers. Fees range between £10 and £20 pounds per occurrence.
- Set-Up Charges: An occasionally unavoidable fixed cost for installation of merchant facilities. Usually a one time cost, fees vary between £0 and £50
- PCI Compliance Charge: An administration fee to obtain a yearly compliance certificate and PCI Self Questionnaire Certification. You can expect to pay a monthly fee of £2 to £5 per outlet.
These are the fees that come with processing credit card payments. The amount you personally spend will be contingent on a number of factors, such as your turnover rate, your total amount of terminals, the kind of credit card used by customers, and whether transactions occur in-store or online.
In another section, I will go over an invoice example for a company so you can get a better idea of what you can expect to pay.
Before we get to that, though, let’s talk about surcharging.
Can customers be surcharged?
The topic of surcharging is somewhat complicated. From one perspective, it stands to reason that if credit card payments warrant extra costs, then customers who use credit cards should cover those costs.
That’s what surcharges originally entailed – a small cost to cover fees that come with processing credit card payments. Charges were limited to customers who chose to pay by credit card.
Sadly, some organizations (typical ones with low payment processing fees) use surcharges to profit further from customers. Some large companies in the travel-based industry were exposed talking on as much as 5% worth of surcharges for customers who paid with debit or credit cards. The same companies were probably paying less than 1% to have payments processed.
The surcharge abuse got to a point where new legislation was introduced by the EU at the beginning of 2018. This legislation banned surcharges for personal debit and credit cards. Commercial credit cards still face high surcharges, but only as much as the prior legislation allows (in other words, businesses who pay for transactions with company credit cards don’t pay anything more than the cost of processing a payment).
These days, companies no longer have permission to charge people for using debit or credit cards. Rather, businesses must either include such costs in whatever they charge for services or products, or cover such fees on their own. Again, this is not applicable to commercial credit cards.
With this surcharge ban, it is more vital than ever for credit card payment service providers to be competitive.
This begs the question: based on credit card charges for small businesses, what’s the best credit card machine to use?
This is a complicated question. Ultimately, the best credit card device for one company might not be suitable for another one.
To filter down your options, ask yourself the following questions. They can help you narrow down your choices in order to determine which one is a good fit for your company.
For a comprehensive lesson on ways to find an ideal credit card machine, review the card machine tabs in the menu. It is quite thorough and goes over everything from mobility to support.
- Is the location you reside in fixed? POS systems are connected physically to static terminals, which are the cheapest options out there. Portable terminals communicate over Wi-Fi or Bluetooth to connect with a POS system. For transactions to be processed on the road, mobile POS devices are available that are compatible with a designated app on tablets and smartphones.
- How frequently are payments processed? Many credit card machines include rental agreements that span multiple years. They sometimes come with a service charge minimum each month, as mentioned earlier. For businesses with a regular flow of customers, such devices will be suitable. If your company has trading patterns that are irregular, though, consider options like SumUp and iZettle, which let you pay per transaction.
How much can I expect to pay each month?
As mentioned earlier, the specific amount you will pay each month is a complex question. The answer is contingent on the specific deal you signed up for, your turnover rate each month, and how that turnover is broken down.
Here is a case study on how charges could be broken down, Andrew’s Bakery turns over about £400,000 annually, and the average transaction had a value of about £100. £320,000 of that £400,000 were allocated to credit card fees, and another £40,000 to debit card fees.
With a “high street” type of deal, here is what that company could potentially pay:
- Service Charge (merchant) – 1.3% credit: £346.66
- Service Charge (merchant) – 0.7% debit: £46.66
- Authorization Charges: £13.16
- Terminal Hire fee: £20
- MMSC: no charges.
- PCI Compliance charges: £.3.50.
In total, the payment processing expense each month would be about £253.24. This is 1.35%, give or take, of the office supply store’s turnover.
That same business was run through Comparecardprocessing in order to find a quote that was more competitive. They ended up minimizing the payment processing costs each month down to about £249.80. That would be 0.75% of the store’s turnover.
The savings equate to 45%, which equates to £2400 annually.
How do you find inexpensive merchant services?
At this point, you understand the importance of getting the right deal for merchant services. Sadly, not very many companies conduct their due diligence in order to get a grasp of what is available to them.
If you aren’t mindful of what is available, you will be more inclined to make a poor purchasing choice, which will result in paying more fees than you need to throughout the course of the contract you signed.
The following section will reveal how SMEs can obtain inexpensive merchant services. For more information about various merchant service sales channels, have a look at our comprehensive blog article about them. Click here to read it.
Products for merchant services are not owned by banks. Rather, banks collaborate with credit card processors and have their services resold through them. Note: this is not applicable to Barclaycard.
Credit card processors prefer to sell through banks because both parties profit from doing so. In short, many businesses come to banks because they need merchant services. That means whatever they will be charged will be accepted. Businesses rely on this much-needed service.
Because of this, banks increase their fees, making a small profit from each one of their commercial customers. Credit card processors don’t give banks very much wiggle room, and as such, banks cannot minimize their fees, no matter how much you negotiate with them.
Credit Card Processors
Modern technology has simplified the process of consumers buying directly from suppliers or manufacturers, eliminating the need for costly middlemen. This is no different for merchant services, at least it shouldn’t be.
Credit card processors are aware that business owners that contact them require their services. As such, processors have no concerns about jacking the prices up, as they know commercial customers will pay whatever they charge. The prices obtained from credit card processors are high, just as bank rates are, but are hardly competitive.
Websites for Price Comparisons
To get the strongest deal you can, you must visit what is known as an ISO (Independent Sales Organization). A countless amount of merchants are represented by ISOs, who collectively negotiate on their behalf with credit card processors.
Having said that, talking to random ISOs will not be effective. Although ISOs are significantly less expensive than other types of sales channels, a variation between deals will usually be apparent.
So make sure to use our price comparison engine to get the best deals.