| Business Payments |
Card machine fees comprise interchange, scheme fees, and acquirer margin. Interchange is capped at 0.2% for debit and 0.3% for credit. Scheme fees add a fraction of a percent, while the rest of a 1.69% to 1.99% headline is acquirer margin. Three worked examples illustrate costs at £2K, £10K, and £40K monthly turnover.
Card machine fees consist of interchange (capped at 0.2% debit, 0.3% credit), scheme fees, and acquirer margin, with typical blended rates of 1.69% to 1.99%.
KEY FACTS
|
LAST REVIEWED 2026-09-05
What you actually pay per card payment
When a customer pays by card, the merchant pays a fee to the acquirer, which is the company that provides the card machine and processing services. This fee is typically a percentage of the transaction value plus a fixed pence amount, but the total is built from several layers. The three main components are interchange, scheme fees, and the acquirer margin. Interchange is set by the card schemes (Visa and Mastercard) and paid to the card issuer. Scheme fees are also set by the schemes for network usage. The acquirer margin is the profit for the payment processor.
In the UK, the headline rate quoted to merchants is often a blended rate, such as 1.69% or 1.99%. This single percentage includes all components, but the actual cost varies by card type. For example, a consumer debit card has a lower interchange cap than a commercial credit card. Understanding the breakdown helps merchants negotiate better terms and see where the money goes.
It is important to note that the figures quoted in this article are based on typical market rates and regulatory caps. Actual rates may vary depending on the acquirer, the merchant's turnover, and the card types accepted. Merchants should always check their fee schedule for the exact rates applied.
Interchange and the IFR caps
Interchange is the fee paid by the acquirer to the card issuer for each transaction. It is the largest component of card acceptance costs for most merchants. In the European Union, the Interchange Fee Regulation (IFR) set caps on interchange fees for consumer cards. These caps were retained in UK law after Brexit. For consumer debit cards, the cap is 0.2% of the transaction value. For consumer credit cards, the cap is 0.3%. These caps apply to transactions within the UK and the European Economic Area.
The IFR caps are significant because they limit the amount that issuers can charge for processing payments. However, they do not apply to commercial cards, which are issued to businesses. Commercial cards often have higher interchange fees, sometimes exceeding 1% or more. This is why accepting commercial cards can be more expensive for merchants.
The caps are set out in the IFR, which is available at legislation.gov.uk. The Payment Systems Regulator (PSR) has also reviewed the card acquiring market and has implemented remedies to improve transparency. Merchants should be aware that interchange is not a fixed cost; it varies by card type and scheme. The caps provide a baseline, but actual interchange rates can be lower for certain card products.
Scheme fees
Scheme fees are charged by Visa and Mastercard for the use of their payment networks. These fees cover the cost of authorising, clearing, and settling transactions. Unlike interchange, scheme fees are not capped by regulation. They are set by the schemes and can vary depending on the card product, the transaction type, and the merchant's processing volume.
Scheme fees are typically a small percentage of the transaction value, often in the range of 0.1% to 0.2%, but they can be higher for certain card types, such as commercial cards or cross-border transactions. They may also include fixed fees for specific services, such as chargebacks or fraud monitoring.
Because scheme fees are not transparent, they are often bundled into the blended rate. However, under an interchange-plus-plus (IC++) pricing model, scheme fees are shown separately. This allows merchants to see exactly what they are paying for network services. The PSR has encouraged transparency in scheme fees, but they remain a significant part of the total cost.
Merchants should review their statements to identify scheme fees. In some cases, these fees can be negotiated, especially for high-volume merchants. However, for small businesses, scheme fees are often non-negotiable and are passed through by the acquirer.
Acquirer margin
The acquirer margin is the fee charged by the payment processor for its services. This margin covers the cost of providing the card machine, customer support, risk management, and the acquirer's profit. It is the component that is most negotiable and varies significantly between providers.
In a blended rate, the acquirer margin is the difference between the total rate and the sum of interchange and scheme fees. For example, if the blended rate is 1.69% and interchange plus scheme fees amount to 0.5%, the acquirer margin is 1.19%. This margin can be higher for small merchants with low turnover, as the acquirer needs to cover fixed costs.
Under an interchange-plus-plus (IC++) pricing model, the acquirer margin is quoted as a separate percentage and fixed pence amount. This makes it easier to compare offers from different acquirers. However, many small businesses are offered blended rates, which can obscure the true cost.
The PSR's market review found that some acquirers do not always pass on the benefit of lower interchange fees to merchants. This led to remedies such as summary boxes and trigger messages to improve transparency. Merchants should ask for an IC++ quote to understand the acquirer margin and negotiate a lower rate.
Blended vs interchange-plus-plus
Blended pricing is a single percentage rate applied to all transactions, regardless of card type. For example, a merchant might be quoted 1.69% for all debit and credit card payments. This is simple to understand but can be misleading, as the actual cost varies by card type. If a merchant accepts a high proportion of commercial credit cards, the blended rate may not cover the higher interchange, and the acquirer may increase the margin.
Interchange-plus-plus (IC++) pricing breaks down the fee into three components: interchange, scheme fees, and the acquirer margin. Each is shown separately on the statement. This provides full transparency and allows merchants to see exactly what they are paying for each part. IC++ is often considered fairer, as the acquirer margin is fixed, and the interchange and scheme fees are passed through at cost.
However, IC++ can be more complex to understand, and the final cost may vary from month to month as interchange rates change. Blended rates offer predictability, but they may include a higher margin to cover the risk of higher interchange on certain cards.
Merchants should compare both pricing models. For small businesses with low turnover, blended rates may be simpler and cost-effective. For larger businesses, IC++ can lead to significant savings. The PSR recommends that acquirers provide clear information to help merchants choose.
Worked examples by monthly turnover
To illustrate the cost of card machine fees, consider three merchants with monthly card turnovers of £2,000, £10,000, and £40,000. The table below shows the monthly cost under two blended rates (1.69% and 1.99%) and an example IC++ pricing structure. The IC++ example assumes an interchange rate of 0.2% for debit and 0.3% for credit, scheme fees of 0.1%, and an acquirer margin of 0.5% plus a fixed fee of £10 per month. For simplicity, the example assumes all transactions are consumer debit cards.
| Monthly card turnover | Blended 1.69% | Blended 1.99% | IC++ example | Source |
|---|---|---|---|---|
| £2,000 | £33.80 | £39.80 | £10 + £16.00 = £26.00 | Calculated from rates |
| £10,000 | £169.00 | £199.00 | £10 + £80.00 = £90.00 | Calculated from rates |
| £40,000 | £676.00 | £796.00 | £10 + £320.00 = £330.00 | Calculated from rates |
These examples show that blended rates can be significantly more expensive for higher turnovers, especially if the merchant accepts a mix of card types. The IC++ model is more transparent and can be cheaper, but it requires a higher volume to offset the fixed fee. Merchants should consider their average transaction value and card mix when choosing a pricing model.
Hidden line items: PCI, authorisation, minimum monthly service
Beyond the per-transaction fees, merchants may encounter additional charges on their statements. These include PCI compliance fees, authorisation fees, and minimum monthly service charges. PCI fees cover the cost of maintaining payment card industry data security standards. They are typically charged annually or monthly, often around £20 to £50 per year, but can be higher.
Authorisation fees are charged for each transaction that is authorised, even if it is declined. These are usually a few pence per transaction. Minimum monthly service charges are applied if the total fees for the month fall below a certain threshold, such as £10 or £20. This ensures the acquirer covers its costs for low-volume merchants.
Other potential fees include chargeback fees, which are charged when a customer disputes a transaction, and early termination fees if the merchant cancels the contract before the end of the term. The PSR has capped the maximum initial term for POS terminal rental contracts at 18 months, effective from July 2023, to prevent long lock-ins.
Merchants should read their contracts carefully to identify all potential fees. The PSR's remedies, including summary boxes and trigger messages, aim to make these fees more transparent. Merchants should ask for a full list of fees before signing up.
How to read a fee summary box
Since July 2023, the PSR requires acquirers to provide a summary box for card acquiring services. This box is designed to present key fees in a clear and comparable format. It includes the main charges such as the monthly service fee, transaction fees, and any other recurring costs. The summary box should also state the duration of the contract and any early termination fees.
When reading a summary box, merchants should look for the following: the monthly fee, the transaction fee (as a percentage and pence), the PCI fee, and any other charges. The summary box should also indicate whether the pricing is blended or IC++. If it is blended, the box should state that the rate includes interchange and scheme fees.
Merchants should compare summary boxes from different acquirers to find the best deal. The PSR also requires trigger messages to alert merchants when they are out of contract or when their fees are increasing. These messages help merchants review their arrangements and switch if necessary.
It is important to note that the summary box does not include all possible fees, such as chargeback fees, which are event-based. Merchants should ask for a full schedule of fees to understand the total cost.
Related Guides |
Disclaimer. This guide is editorial information drawn from primary sources. It is not financial, legal or tax advice and does not recommend any provider. Figures are those published by the named sources on the review date and may change. Kael Tripton Ltd receives no commission, referral fee or lead payment from any provider named on this page. |
Frequently asked questions
What is interchange?
Interchange is a fee paid by the merchant's acquirer to the card issuer for each card transaction. It compensates the issuer for the risk and cost of providing the card. In the UK, interchange fees are capped by the Interchange Fee Regulation (IFR) for consumer cards: 0.2% for debit and 0.3% for credit. Commercial cards are not capped and can be higher. Interchange is set by the card schemes and is a significant part of the total cost of accepting cards.
Why do I pay more than 0.2% if interchange is capped?
The 0.2% cap applies only to the interchange component for consumer debit cards. The total fee you pay includes other components: scheme fees (charged by Visa and Mastercard) and the acquirer margin (the processor's profit). Additionally, if you accept credit cards, the interchange cap is 0.3%, and commercial cards have no cap. Blended rates often include all these costs, so the headline rate is higher than the interchange cap.
What is a blended rate?
A blended rate is a single percentage rate applied to all card transactions, regardless of card type. For example, a merchant might be quoted 1.69% for all transactions. This rate includes interchange, scheme fees, and the acquirer margin. Blended rates are simple but can be less transparent, as the actual cost varies by card type. Merchants may pay more if they accept a high proportion of commercial or credit cards.
Are commercial cards capped?
No, commercial cards are not subject to the interchange fee caps under the IFR. The caps apply only to consumer debit and credit cards. Commercial cards, such as corporate credit cards, often have higher interchange fees, sometimes exceeding 1% or more. This is because they offer additional benefits like rewards and expense management. Merchants should be aware that accepting commercial cards can increase their costs.
Do I pay fees on refunds?
Yes, in most cases, you will pay fees on refunds. When you issue a refund, the original transaction is reversed, but the acquirer may still charge a fee for processing the refund. Some acquirers charge the same percentage fee as the original transaction, while others may charge a lower fee or a fixed amount. It is important to check your merchant agreement for the refund fee policy.
Sources |
