Card Processing Fees Explained

Card processing fees are the charges businesses pay whenever a customer makes a purchase using a card. These payment processing fees cover the costs of securely moving money between the cardholder's bank, card networks, and the payment processor, while also supporting the technology, security, and fraud prevention systems that make modern digital payments possible.

Behind what looks like a simple tap or click is a complex payment ecosystem involving multiple parties working together to authorise, route, and settle the transaction. Each participant plays a role in ensuring card payments are fast, secure, and reliable - and receives a small portion of the fees involved.

For UK businesses, understanding these credit card processing costs is essential. Whether you're a small business owner accepting credit card payments for the first time or a growing company handling thousands of customer payments every day, these fees can directly impact margins and cash flow.

In this guide, we'll break down card processing fees in simple terms - explaining how they work, how they're calculated, the different pricing models used by payment processors, and how businesses can manage or reduce payment processing fees.

The Four Parties in Every Card Transaction

Every card payment might feel instant - tap, beep, done - but behind the scenes, several organisations work to move the money securely from the customer to the business.

Most card transactions involve four key parties, each playing a specific role in payment processing - the cardholder, issuing bank, acquiring bank, and card network (Visa and Mastercard).

However, some payment networks, such as American Express, may operate with three parties as the network also acts as the issuer or acquirer.

Understanding these participants helps explain where payment processing fees come from and why they exist.

The Cardholder

This is the customer making the purchase using a credit card or debit card. The cardholder initiates the transaction and authorises the payment using their card details, contactless payment, or digital wallet.

The Issuing Bank (Customer's Bank)

The issuing bank is the financial institution that provided the customer's credit or debit card. When a transaction is made, the issuing bank checks whether the customer has sufficient funds or credit available and approves or declines the payment.

Issuing banks receive interchange fees, which are typically the largest component of card processing fees.

The Acquiring Bank (Merchant's Acquirer)

The acquiring bank - often called the acquirer - is the payment provider that enables the merchant to accept card payments. The acquirer is not necessarily the merchant's primary business bank.

The acquirer communicates with the card networks and issuing bank to authorise transactions and ensure the funds are ultimately transferred to the merchant's account.

The Card Network

Card networks such as Visa or Mastercard act as the payment rails connecting issuing banks and acquiring banks. They provide the infrastructure that allows credit card and debit card transactions to be routed, authorised, and settled securely.

In return, they charge scheme fees (also known as assessment fees) for using their network.

The Three Components of Card Processing Fees

When a business accepts credit card payments or debit card transactions, the total card processing fee isn't a single charge from one provider. Instead, the cost is made up of three separate components, each paid to a different participant in the ecosystem.

These fees collectively form the total cost of payment processing, and understanding how they are structured helps businesses better evaluate providers, pricing models, and overall merchant service fees.

Interchange Fees

Interchange fees are paid to the cardholder's bank (the issuing bank) whenever a card transaction takes place. This fee compensates the bank for approving the payment, providing credit to the cardholder, and managing the risk associated with the transaction.

Interchange is typically the largest portion of credit payment processing fees. The exact rate can vary depending on several factors, including the type of card used, whether the transaction is card-present or card-not present, and the level of security or transaction data provided during authorisation.

Scheme Fees

Scheme fees, sometimes referred to as assessment fees, are charged by the card networks themselves. These fees are paid for using the global infrastructure that allows banks, payment processors, and merchants to communicate and process card payments.

Scheme fees help fund the operation and development of the payment networks that support authorisation, routing, clearing, and settlement of transactions.

While they typically represent a smaller share of the total card payment fees than interchange, they are a necessary part of the payment processing ecosystem.

Acquirer Markup

The final component is the acquirer markup, which is the fee charged by the payment processor or acquiring bank providing the merchant's payment services.

This portion of the Merchant Service Charge (MSC) covers the operational services that allow businesses to accept payments, including transaction processing, payment gateway access, reporting tools, security monitoring, compliance requirements, and customer support.

Unlike interchange and scheme fees, which are largely fixed by the card networks, the acquirer markup can vary between providers. This is often the area where pricing models, contract terms, and negotiated rates have the biggest impact on a business's overall payment processing costs.

What is the Merchant Service Charge (MSC)?

While interchange fees, scheme fees, and acquirer markup make up the three core components of card processing fees, most businesses don't see these charges individually at first glance. Instead, they are typically grouped under a single figure known as the Merchant Service Charge (MSC).

The Merchant Service Charge (MSC) is the total fee a business pays to its acquiring bank or payment processor for enabling it to accept card payments. In simple terms, it represents the overall cost of processing a credit card or debit card transaction.

The MSC usually includes:

In many pricing structures, the MSC is applied as a percentage of the transaction value, sometimes alongside a fixed per-transaction fee. For example, a merchant might pay a small percentage on every credit card purchase, plus a fixed fee for each processed transaction.

Because the Merchant Service Charge combines multiple underlying fees, it can sometimes make it difficult for businesses to see exactly where their payment processing costs are coming from. This is why transparent pricing models are so important - they allow merchants to clearly understand the breakdown of their merchant service fees and evaluate whether they're receiving competitive rates.

Ultimately, the MSC represents the true cost of accepting card payments, which is why understanding how it is structured is essential for managing card processing fees effectively.

What Determines the Interchange Rate?

The exact interchange rate applied to a transaction can vary. In practice, interchange works as a structured table of rates, with different fees applied depending on the characteristics of each credit card transaction.

This means the cost of card processing can change from one payment to the next, even within the same business.

Several factors influence the interchange rate applied to the transaction:

Card Type

The type of card used has a major impact on interchange. Debit cards typically carry lower fees because the funds are taken directly from the customer's bank account.

Credit card transactions, particularly using premium rewards cards, corporate cards, or business credit cards, often incur higher interchange rates because they include additional benefits or pose greater financial risk to the issuing bank.

Transaction Method

How a payment is made can also affect the rate. Card-present transactions, such as chip-and-PIN or contactless payments in-store, usually have lower interchange fees because they are considered more secure.

In contrast, card-not-present transactions - such as online payments or eCommerce purchases - often carry higher fees due to their increased risk of fraud.

Merchant Category

Businesses are assigned to a Merchant Category Code (MCC) that identifies the types of goods or services they provide.

Different industries can fall under different interchange categories depending on factors like risk level, transaction patterns, and regulatory considerations.

Transaction Data & Security Measures

Providing additional transaction information can sometimes help qualify for more favourable interchange rates.

For example, including detailed billing data or using security tools like Address Verification Service (AVS) can help reduce the perceived risk of the transaction.

Cross-Border & International Transactions

Payments involving international cards or cross-border transactions typically incur higher fees. This may include cards issued outside the UK or transactions processed between different regions.

This is because additional processing steps and institutions may be involved when funds move between countries or regions.

Because interchange rates depend on these variables, the exact cost of processing card payments can vary across different transactions.

UK Interchange Fee Regulations

In many regions, interchange fees are regulated to help ensure that the cost of accepting card payments remains fair and manageable for businesses. In the UK and EU, interchange rates for consumer card transactions are capped under regulations designed to prevent excessive credit card processing fees.

Under these rules, interchange fees for domestic consumer transactions are limited to:

These caps apply to consumer debit and credit cards issued within the UK when used for domestic transactions.

Following the UK’s departure from the European Union, some UK-EEA cross-border transactions are no longer subject to the same interchange caps, and the Payment Systems Regulator has been reviewing increases to these fees.

However, not all transactions fall under these regulated limits. Higher interchange rates can still apply in situations such as:

For businesses that frequently accept international payments or business credit cards, this can result in higher card processing fees compared to standard domestic consumer transactions.

Even with these exceptions, interchange regulation has helped improve transparency and predictability around payment processing costs for UK businesses.

Some providers also charge PCI compliance fees, which relate to maintaining compliance with the Payment Card Industry Data Security Standard (PCI DSS). These fees are typically set by the payment provider and are separate from the core Merchant Service Charge.

The Pricing Models: What Are You Actually Being Charged?

The way businesses are charged for card processing depends on the pricing model used by their payment processor or acquirer.

In other words, the underlying costs may be similar across providers, but the structure used to package those costs can vary significantly. This is why two businesses processing similar card payments may see very different merchant service charges.

Understanding the differences can help businesses evaluate their payment processing costs more accurately and choose a model that fits their transaction volume, card mix, and cash flow needs.

Below are the most common card processing pricing models used by payment providers.

Flat Rate (Fixed Pricing)

With flat rate pricing, businesses pay a fixed percentage plus a flat fee per transaction, regardless of the card type used.

This model is popular with small businesses and startups because when the fee charged is fixed, it is easy to understand, and payment processing costs are predictable. Unlike when per transaction fees are levied, there is no need to track interchange categories or different card types. Every credit card transaction is charged at the same flat fee rate.

However, because the provider must account for the variability of underlying fees, the headline rate is typically set higher than the true average processing cost.

As a result, businesses with higher transaction volumes may pay more than they would under more transparent pricing models.

Blended Pricing

Blended pricing combines multiple underlying transaction costs into a single averaged rate.

Instead of passing through the exact interchange rate for each transaction, the processor charges a pre-calculated percentage based on the expected mix of credit cards, debit cards, and transaction types.

This model provides a balance between simplicity and flexibility, but it can make it difficult for businesses to understand payment processing fees, especially when accepting premium credit cards or international payments.

Interchange Plus (IC+)

Interchange Plus (IC+) separates the interchange fee from the processor's markup.

Under this model, merchants pay the actual interchange rate applied to each transaction, plus a clearly defined processor margin. This provides greater visibility into how card processing fees are calculated.

Because the processor markup is transparent, IC+ pricing often allows businesses to compare providers more easily and can lead to lower overall processing costs, particularly for companies processing higher volumes of card payments.

Interchange Plus Plus (IC++)

Interchange Plus Plus (IC++) offers the most detailed breakdown of payment processing fees.

In this model, all three components of the transaction cost are listed separately.

This structure provides the highest level of transparency, allowing businesses to see exactly how much they are paying at each stage of the payment process.

IC++ pricing is commonly used by larger or higher-volume businesses, as it offers the clearest view of card processing costs and makes it easier to optimise payment strategies over time.

For example, acquiring providers such as DECTA offer IC++ pricing models that provide merchants with a fully transparent breakdown of all fees. This level of visibility can help businesses better understand their true cost of acceptance and optimise their payment strategy as they scale.

Typical Fee Rates in the UK

Once you understand the different pricing models, the next logical question is: what do businesses in the UK typically pay to process card payments?

Many UK merchants see overall processing rates ranging from around 0.3% to 2% for negotiated merchant accounts, though flat-rate providers used by smaller businesses may charge higher headline rates.

Where a business sits within that range depends largely on the types of cards their customers use, their transaction volumes, and the pricing model agreed with their payment processor.

The key point is that no single headline percentage tells the full story. Two businesses with the same advertised rate could still end up paying very different total processing costs depending on their transaction profile and pricing structure.

For this reason, many businesses focus less on the advertised rate and more on their overall effective cost of acceptance across all transactions.

Can You Surcharge Customers for Card Payments?

In most cases, UK businesses are not allowed to charge consumers extra for paying with personal debit or credit cards.

The ban generally applies to consumer payment cards and certain electronic payment methods, though different rules may apply to some commercial cards.

Since 2018, UK and EU regulations, such as the Consumer Rights (Payment Surcharges) Regulations 2012, have prohibited businesses from adding surcharges to consumer credit card or debit card payments. This means merchants cannot pass card processing fees directly onto customers by adding a separate charge at checkout.

The rule was introduced to protect consumers from unexpected payment fees and to make pricing more transparent. As a result, the price a customer sees should be the price they pay, regardless of whether they use cash, debit cards, or credit cards.

However, this doesn't mean businesses must simply absorb payment processing costs without consideration. Many companies instead factor card processing fees into their overall pricing structure, ensuring the cost of accepting digital payments is accounted for within their margins.

With card payments now the dominant way customers pay - particularly with the rise of contactless payments, mobile wallets, and online transactions - the focus for most businesses has shifted from avoiding fees to managing them effectively.

Which brings us to an important question: how can businesses keep card processing costs under control?

How to Reduce Your Card Processing Fees

While card processing fees are an unavoidable part of accepting digital payments, that doesn't mean businesses have no control over them. With the right visibility and strategy, it's often possible to reduce overall payment processing costs and avoid unnecessary charges.

Here are a few practical ways businesses can keep card processing fees under control.

Know Your Effective Rate

Rather than focusing only on the headline rate quoted by a payment processor, it's important to understand your effective rate - the average percentage you pay across all transactions.

This gives a clearer picture of your true payment processing costs and makes it easier to compare providers.

Negotiate Your Acquirer Markup

While interchange fees and scheme fees are largely fixed, the acquirer markup is often negotiable. Businesses with growing transaction volumes or strong processing history may be able to secure better pricing or reduced processor fees.

Review Your Card Mix

The types of cards your customers use can influence processing costs. Premium cards, corporate cards, and international cards typically carry higher fees.

Understanding your card mix can help explain fluctuations in payment processing costs and inform pricing discussions with your provider.

Use Pre-Dispute Tools

Chargebacks can be costly, often involving both lost revenue and additional chargeback fees.

Tools that help resolve disputes early - sometimes called pre-dispute or chargeback management tools - can reduce both operational workload and associated costs.

Ask About Hidden Fees

Some providers add extra charges for things like PCI compliance, statement fees, terminal rental, or minimum monthly costs.

Reviewing your contract carefully can help identify these additional fees and ensure there are no surprises on your statement.

Review Annually

Payment processing isn't something businesses should set up once and forget. As transaction volumes grow, sales channels expand, or international customers increase, it's worth reviewing your payment processing setup periodically to ensure your pricing model still makes sense.

With the right approach - and a transparent payment partner - businesses can gain far more control over their card processing costs.

H2 - Better Acquiring Starts With DECTA

Understanding card processing fees is only part of the equation - the right acquiring partner can make managing them far easier.

At DECTA, we provide transparent acquiring and flexible payment infrastructure, helping businesses accept secure card payments while maintaining clear visibility over their processing costs.

With direct connections to card networks including Visa and Mastercard, DECTA supports businesses processing payments across both online and in-store channels.

Learn more about DECTA's acquiring solutions and how they support modern payment processing.