A Beginner’s Guide to Payment Processing Fees


If your company accepts payments, you’re paying payment processing fees right now.


Most company owners ignore these fees, writing them off as just another cost of running a business.

When you start comparing payment processing deals, there’s actually a whole lot of variation in the industry. While the differences between deals might look small — maybe one or two percent — it can add up to thousands of pounds in lost revenue every year.

It might not surprise you but I think business owners ought to be paying more attention to their payment processing deals. However, to do so, you’ve got to understand what a payment processor will actually charge you.

And that’s tricky.

You see, although your supplier will send you one large bill, it isn’t actually one big fee. Instead, it’s lots of little fees and charges, which get bundled together and charged to you in one large lump.

So for the rest of this, I’m going to run through the major payment processing costs, explaining what they are and how much they should be.

#1 Merchant Service Charge

The merchant service charge (MSC) is the percentage you pay on every credit or debit card transaction you accept. Unless you’re a super low volume merchant, the MSC will form the bulk of your payment processing costs.

How much is it typically?

  • Debit Cards (0.25% to 0.35%)
  • Consumer Credit Card (0.7% to 0.9%)
  • Commercial Credit Card (1.6% to 1.8%)

What to watch for

When you contact a company for a payment processing quote, they usually only quote you the face-to-face transaction rates for personal cards. These rates are the lowest they offer so present an artificially low estimate.

For example, your cardholder-not-present (CNP) transactions will be charged at a significantly higher rate. Online and over-the-phone payments also fall into a higher bracket.

Then there’s company cards, purchasing cards, fleet cards and other premium cards, which all attract a higher payment processing fee, too.

I recommend you always ask for a full list of fees, covering all modes of payment you plan to accept.

#2 Terminal Hire

If you want to accept card payments, you need something for your customers to plug their card into. That something is called a terminal and it’s rented to merchants by providers.

Because terminals are expensive, hire agreements typically run for multiple years and come with hefty termination costs if you want out early.

How much is it typically?

  • Countertop terminal: £14 to £16 per month
  • Portable terminal: £17 to £21
  • Mobile Terminal: £20 to £24

What to watch for

Terminal rental agreements are long, typically running to three or four years.  If you want to exit your agreement before the contract has expired or before the specified minimum term, you’ll usually get stung by early termination costs.

The early termination cost is usually just the terminal rental costs for however long is left on the contract or the minimum term.

While some providers will offer a discount for paying off your contract early, others will whack on an extra fee.

#4 Authorisation Fees

Some providers will charge an additional fee on every transaction for authorisation purposes. The authorisation fee is usually a couple of pennies so won’t bother many merchants.

However, if you have a low transaction volume, the fixed authorisation free can really inflate your costs.

For example, if your average transaction value is £5 and all your other processing fees come to 5p, that authorisation fee bumps your overall costs up by 60%.

How much is it typically?

Average authorisation fee: 3p per transaction

What to watch for

Ask your provider whether authorisation charges are included or whether you pay them separately. You don’t want to receive your first bill and discover a surprise new charge.

#5 PCI Compliance Fees

Let me be honest with you, the PCI compliance fee is a bit of an administration charge. While the PCI requirements have been around for years, the charges are fairly new.

How much is it typically?

Average PCI compliance fee: £30 to £50 per year

What to watch for

First things first, if you don’t achieve PCI compliance, you’ll be charged a higher fee for non-compliance fee. Exactly how the fee is depends on your provider.

In addition to the physical PCI compliance charge, some suppliers will also charge a separate fee for online PCI compliance so watch out for that, too.

#6 Minimum Monthly Service Charge

Providers invest a lot of cash in merchants upfront. There’s the cost of the terminal, installation and all the related admin costs. So they want to know that they will (eventually) make their investment back.

Suppliers will benchmark profitability of merchants and there is a cutoff point, below which a merchant is unprofitable. If a merchant falls below this level, a supplier probably doesn’t want their company as they are costing them money.

The MMSC is designed to ensure that all merchants deliver profit above a minimum threshold.

If your monthly transaction charges are higher than the MMSC, your supplier will not add any additional charge. If your transaction charges fall below the threshold, your supplier will add additional charges to bring your monthly bill up to the MMSC.

How much is it typically?

Average MMSC: £20 to £25 per month

What to watch for

While most suppliers will have an MMSC, you probably won’t see it as your volumes are probably above the threshold.

Before agreeing to any deals, I suggest you calculate your own monthly transaction volume and estimate what you’d have to pay in payment processing costs. If your volumes consistently fall below the threshold, it may be worth your while investigating other methods of payment.

#7 Set Up Fees

The set up fee is exactly what it says on the tin. A fee for setting up your payment facilities.

In all honesty, this is an arbitrary fee that some suppliers like to charge. The justification  is that it covers their cost and the time it takes to processing your application. I’ll let you decide if that’s fair.

The good news is that most suppliers don’t charge set-up fees because the market is far too competitive.

How much is it typically?

Average set up fee: £75 to £200

What to watch for

The set up fee is the easiest charge to negotiate away. Before you speak to a salesperson, do your research and note down which competitors charge set up fees and which ones don’t. When you’re ready to buy, present the salesperson with all their competitors who don’t charge set up fees and be ready to walk away.

#8 Chargeback Fees

A chargeback is a formally disputed transaction between you and a customer mediated by the acquiring and issuing bank. If the chargeback is successful, the transaction is reversed and the customer has the money returned to his or her account. Is the chargeback is unsuccessful, you keep the money.

Providers will charge a small(ish) fee for every chargeback you receive to cover the administration costs.

How much is it typically?

Average chargeback fee: £15 per chargeback

What to watch for

This is a standard fee and there’s not really much to look out for.

#9 Annual Admin Charge

The annual admin charge is a fee some providers have to cover costs incurred by maintaining an account.

How much is it typically?

Average annual admin charge: £5 per month

What to watch for

Most suppliers do not charge an annual admin charge.  Of those that do, we recommend you try and negotiate the charge down. Most suppliers will if you kick up a fuss.

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