A guide to credit card merchant fees

A guide to credit card merchant fees

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Any small business owner will know that keeping an eye on outgoings is a must. When trying to keep track of your cash flow, small costs can quickly add up. In particular, credit card merchant fees (transactional charges) can have a big effect on your bottom line.

As credit cards help you spread the cost of spending, customers will often use them to pay for purchases. The charges that come with these credit card purchases can be difficult for small businesses to deal with - especially alongside the monthly or yearly tariff necessary to keep a merchant account.

What are credit card merchant fees?

Merchant fees are transactional charges issued to businesses by banks whenever accepting credit card payments from customers. The fees will depend on the type of card the customer uses and the network through which the transaction is made. Some of these fees include:

Merchant service chargeThe MSC, or merchant service charge, makes up most of your merchant fees. MSCs are charged as a percentage of every sale made.

Terminal chargesBrick-and-mortar businesses may use a payment terminal for collecting sales. Terminal charges refer to the cost of keeping a chip and PIN machine and can vary depending on its quality.

Gateway feesPayment gateways are used for processing online transactions, providing a secure environment for transactions to take place. The fees for these gateways will depend on which provider you decide to go with - some charge per transaction, while others have a flat monthly rate.

Authorisation feesOn top of transaction fees, there are also costs for authorisation. Authorisation fees validate the card being used and make sure that there is sufficient credit available.

PCI compliance feeAny business that accepts credit card payments must follow PCI DSS. This is the industry data security standard for card payments and ensures all customer data is safely stored and sent.

Administrative feesDepending on what payment processor you go for, you may have to pay additional admin fees. For example, some processors charge new merchants a one-time set-up fee. Chargeback fees are also another example of these admin fees.

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How much are credit card merchant fees?

There are a few different criteria that determine the amount you'll be expected to pay for these fees, which altogether can be quite tricky to understand. These include:

  • The nature of your business
  • The average transaction amount
  • The payment processor you use

There are, however, some guidelines for each fee - it’s important to note that some are monthly subscriptions, whilst others are based on individual transactions. Use the below as an estimate for your own business:

  • Merchant service charges - Debit cards: 0.25% to 0.6%/Credit cards: 0.3% to 0.9%/Commercial credit cards: 1.5% to 2.5%
  • Terminal charges - Fixed terminal: £14 to £20/Portable terminal: £16 to £25/Mobile terminal: £20 to £35
  • Gateway fees – 6p-10p per transaction/Fixed fees: £10-£20 monthly
  • Authorisation fees - 1p-6p per transaction
  • PCI compliance - £2-£20 per month
  • Administrative fees can vary greatly, depending on things such as chargebacks.

How iwocaPay can help

With all of these charges to think about, getting your business ready for trading can be intimidating. But it doesn't have to be. iwocaPay lets you control how you take payments for your business - while giving your customers the option to spread the cost of payments, too.

iwocaPay gives your customers the option to pay now or pay later. Transactions are always free for you and your customer if they choose Pay Now.

With Pay Later, you can decide whether you or your customer pays for transactions. If you choose Free for You, customers can spread the cost of their invoice, up to a maximum of 90 days. This is paid in three equal payments, at a rate of 1.5% repr. for every day payment is due - but they can also settle up early at no extra cost, too.

If you decide to go with Free for your customer, your customer will make three equal payments but without the interest, and you’ll pay a fixed 3% for each Pay Later transaction. This is all you’ll pay - there are no setup costs or upkeep fees. And if your customer doesn’t pay, we’ll never ask you for the money.

iwocaPay makes doing business and building trust with your customers equally as simple, so you can focus on building better relationships with your customers. With iwocaPay, you can get paid on your terms, every time.

Words by
Miles Warner
Article updated on:
February 15, 2024

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A guide to credit card merchant fees

What are credit card merchant fees and how much are they? Find out all about the fees, what they cover and how to avoid them.

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