How much are card fees : A complete guide to processing costs

Despite today’s payments landscape being broader than ever, cards remain – for now at least – entrenched and habitual. So much so that in some markets like the UK, card transactions have gone up in the last year, with 2.2 billion debit and 374.6 million credit card payments in April 2024 — an annual increase of 6.9 and 15.3 percent respectively. 

Accepting cards, however, comes at a cost. For every payment you receive there are multiple fees that, when added up, make a dent in your bottom line. In markets like Australia, merchants can cover some of the costs by surcharging their customers, but elsewhere the total cost falls on the business. 

Real-time payments (RTPs) powered by open banking are changing the landscape though, offering a more streamlined, cost-effective way for merchants to accept funds directly from consumers’ bank accounts. In the UK there are now over 10 million open banking users, proving that these account-to-account (A2A) payments are a real challenger to cards.

Read on to better understand the true cost of all the fees associated with credit and debit card payments, identify areas where money can be saved, and learn how ‘Pay by Bank’ is making its mark as a powerful alternative to cards.

The journey of a card payment

There are multiple players in the journey of accepting, approving and processing a card payment:

• The cardholder
• The merchant
• The merchant acquirer
• The card issuer 
• The card schemes/networks 

Below is how the card payment journey looks like from end to end:

If one step fails, so too does the transaction. 

What fees come with accepting card payments?

Fees come with each encounter in the lead up to accepting and processing a card payment. They are usually calculated and charged as a percentage of the transaction amount or a fixed fee, which we’ll clarify below. These differ across different markets too, so look out for some country-specific highlights throughout this guide.

Businesses whose payments are solely or predominantly online will encounter the following card fees: 

• Payment gateway fees
• PCI compliance fees
• Authorisation fees
• Acquirer markup fees
• Scheme fees
• Interchange fees
• Chargeback fees

Let’s break them down one by one to understand how they work, and the impact they have on your business’ overall outgoings. 

The cost of payment gateway fees

What is a payment gateway?

A payment gateway enables merchants to accept and process card payments from customers. Serving as an intermediary in the payment flow, the payment gateway securely checks data before encrypting it, sending it for authorisation, and confirming the response (approved or declined) with the merchant. In simple terms, it’s the virtual equivalent of a Point-of-sale (POS) terminal for online transactions, and it’s necessary for any business wishing to accept card payments. 

How are payment gateway fees calculated?

Payment gateway fees can differ depending on the provider’s approach to charging, but it will always begin with a setup fee. This one-time cost supports onboarding and opening your account. After that, there are different recurrent cost types that reflect a merchant’s needs:

• Monthly fees. This cost is based on a time period, rather than the volume of transactions, and benefits merchants that process high volumes of online card payments.
• Transaction fees. This cost is per transaction processed. This fee can differ when calculated — either a percentage of the total amount or a fixed amount (or sometimes both). 
• Batch fees. This setup charges a single fee for a batch of transactions rather than per transaction, which can be more cost-effective in the long run.

The cost of PCI compliance fees

What does PCI compliant mean?

The Payment Card Industry (PCI) is the segment of financial organisations that store, process and transmit data from cards, including credit, debit, and prepaid cards. You may be familiar with the acronym PCI DSS, which stands for the Payment Card Industry Data Security Standards. Set up by card companies including Visa and Mastercard, these standards are in place to ensure and improve security around sensitive data, and are made up of 12 requirements.

How are PCI compliance fees calculated? 

PCI DSS breaks down merchants into four categories, based on their annual number of transactions: 

• Level one: Processing more than six million transactions annually 
• Level two: Processing between one million and six million card transactions annually
• Level three: Processing between 20,000 to one million transactions annually
• Level four: Processing fewer than 20,000 transactions annually

Businesses in level one must have their PCI compliance confirmed by a third party, which will charge a fee to cover the resources and support needed to ensure PCI DSS are met. Smaller merchants are required to formulate their own way of remaining compliant, which in itself comes with costs such as training, assessments and maintaining software. 

Non-PCI compliance fees

If a merchant doesn’t meet the PCI standards, and is unable to show its compliance, they will receive a penalty fine in the form of non-compliance fees. This is due to the risk of not protecting the customers’ card payments, and can either be charged per transaction or per merchant ID every month — whichever is the greatest sum. It’s calculated one month in arrears, and the fees will only stop once the business can prove it is compliant.

The cost of authorisation fees

What is authorisation? 

Authorisation is the process of the card issuer verifying and approving a card holder, before authorising the merchant to take the payment. This stage is triggered by the card scheme and involves a card’s validity and sufficient funds or credit limits being checked.

To cover the cost of these steps, the card issuer charges a fee, regardless of whether the outcome is successful or not. 

How are authorisation fees calculated?

Authorisation fees are flat, low-cost and charged per transaction as itemised costs. In the UK, for instance, they cost as little as 1-6p per transaction. So, if a business processes 1,500 transactions a month at 4p per transaction, their authorisation fees total £60 a month. 

The cost of acquirer mark-up fees

What is an acquirer mark-up?

An acquirer markup is the cost the acquirer — a PSP or acquiring bank — charges a merchant for acquiring funds from the customer’s bank. The fee covers services such as maintaining the payment flow and managing fraud. This fee reassures merchants that funds will end up in their account after being retrieved from the cardholder.

How are acquirer markup fees calculated?

Unlike other fees, acquirer markup fees are agreed collaboratively and are typically a percentage of the transaction or a set fee per transaction catered to the merchant. The price is impacted by aspects such as the acquirer itself, what card type (debit or credit, business etc.) is being used, and volume of transactions. 

The cost of card scheme fees

What are card scheme fees?

Card scheme fees are the charges merchant acquirers pay to card networks such as Visa, Mastercard and American Express, in order to have access to their services. Alternatively, card scheme fees can be paid to any financial institution authorised to issue a credit or debit card. 

These costs are passed on to merchants from the acquirers as part of the overall transaction costs. 

How are card scheme fees calculated? 

Since card scheme fees are unregulated, their true cost isn’t clearly known outside of the card networks — though Wordline has indicated what costs can be expected across different countries. 

A card scheme fee may include any number of charges in a single sum, covering services such as maintaining the network, refunds, and cross-border payment fees. Like acquirer markups and — as you’ll soon read — interchange fees, there are many variables that impact the card scheme fee. These include the transaction type (i.e. a purchase or payout), whether the card is present or not, the merchant location, and the currency. Card scheme fees make up a fraction of a percent of each transaction value, going up to over 2%, and differ based on factors like card type (debit, credit, personal or business etc.) and location (here are the latest UK fees, for example).

The cost of interchange fees

What are interchange fees?

For every card transaction, the card issuer (i.e. the customer’s bank or card lender) charges an amount to the merchant’s acquiring bank. The cost is dictated by the card network, and — like the card scheme fee — the interchange fee is what a merchant must pay as part of the overall processing costs. 

How are interchange fees calculated?

As mentioned above, interchange fees are set by the card networks and are usually a fixed amount, plus a percentage of the total transaction amount. Interchange fees cost 0.3-3% of the transaction value, and equate to 70-90% of the total card processing fees merchants pay. 

There are multiple factors that impact the cost of an interchange fee, from the card itself to the industry the merchant operates in. 

• Card type. Standard, single-issued debit and credit cards have lower interchange fees compared to commercial, reward and premium cards.
• Type of transaction. Card-not-present (CNP) transactions, like online or phone payments, carry a higher risk of fraud, therefore incur higher fees than card-present, in-person transactions at POS terminals.
• The card scheme. A Visa card won’t result in the same interchange fee as a Mastercard, and these differ across regions too. For example, Visa has a whole page dedicated to its interchange fees across European countries, broken down into categories: both the card issuer and merchant being in Europe, and the card issuer outside of Europe but the merchant within. 
• Transaction amount. As interchange fees include a percentage of the total transaction amount, higher transactions will automatically come with higher costs.
• Merchant category code (MCC). Depending on the type of business and industry, merchants are assigned a code related to their risk level, which influences the fees.

Visa and Mastercard publish new interchange fee rates twice every year in April and October, and increases can occasionally cause unrest — notably with Amazon UK back in 2021. The e-commerce giant was close to refusing Visa credit cards due to the increase in interchange fees for cross-border transactions between the UK and EU, following Brexit. This came after the British Retail Consortium called out Visa and Mastercard’s costly fees, noting that the doubling in price would lead to retailers passing costs onto shoppers. 

Both schemes made the news again in September 2024, as the UK’s payment systems regulator, which works with HM Treasury, condemned the ‘unwarranted’ increase in fees and the impact it has on businesses. 

Interchange fees pricing plans

There are two widely selected pricing plans that merchants use to cover the costs of interchange fees, scheme fees and acquirer markups:

• Blended. The simpler of the two for merchants to factor into their overall costs, blended model prices consist of an average processing cost and a fixed markup fee. This is a set amount, with the markup fee remaining consistent with every transaction. However, this doesn’t give any insight into how the costs are broken down.
• Interchange++. In contrast to blended, interchange++ pricing shows the exact breakdown of each fee. While it requires more attention to detail and monitoring than blended pricing, interchange++ offers merchants an opportunity to agree to fixed percentages and save money in the long run amid changes and amendments to prices. 

The cost of chargeback fees

What are chargebacks? 

A chargeback is when a customer requests a refund from their card provider rather than the merchant. Also referred to as a dispute, this can be triggered by a customer for a number of reasons, including fraudulent activity, not receiving the item ordered, or the item being defective. Once the chargeback request is approved, the bank returns the funds into the customer’s account.

How are chargeback fees calculated?

A merchant must pay a chargeback fee for each chargeback they receive. It is paid to the acquiring bank, and can range in cost. According to Chargebacks911, fees can range between $20-$100 in the US, exceeding these costs if a business is deemed high risk. In the UK, they can reach up to £100.  

On top of the fees listed above, the operational and product costs, and the revenue made from the original sale, are lost to chargebacks, making a big dent in profits.

Chargeback rates vary across countries. For example, while China and Japan have chargeback rates of 0.18%, Brazil comes in more than 19 times more costly at 3.48%. 

How can merchants cut back on payment costs?

All of the fees above are unavoidable, and in time it’s unclear how much costs will go up. With acquirer markups the only costs negotiable, there is little wiggle room to reduce the money spent on accepting card payments. 

But there is a way to accept payments from customers easily, securely and quickly (instantly, in fact), without multiple added costs. 

How open banking payments compare to card payments

We already covered the card payment flow at the beginning of this guide, and all of the fees and parties involved in a single transaction.

Open banking payments bypass the need for many of these steps and involve far fewer intermediaries (you can learn more about how open banking works and a global view here). Since the transactions are initiated directly from a user’s bank account, this means no interchange, scheme or chargeback fees. The customer verifies themselves via their banking app, where they also authorise the payment, removing those steps in the card process, while maintaining security and fraud prevention. Further, funds settle instantly, compared to one to three days for card payments. 

A regulated third-party payment initiation service provider (PISP), like Volt, initiates and facilitates these payments as a PSP would for card payments, without some of the biggest costs associated with payments. 

The cost savings are clear, as 150 UK organisations with an annual revenue of £2 million or more surveyed by NatWest’s Payit™ proved. Results showed that those companies not using open banking spent around £1,687 more in payment processing in a year, and £1,117 more on card fees. It goes beyond cost though, with those businesses utilising open banking systems spending around 44.5 hours a month on payments-related tasks such as reconciliation, invoice matching and data entry — a drastic difference compared to the over 57 hours spent by companies without this technology. 

Choose a provider that goes beyond payments

At Volt, our open banking products cover both payment initiation services (PIS), covering every step of the transaction, from initiation to receipt. With this transparency we’re able to clearly identify and track the journey of the payment, and confirm settlement of funds. 

Interested in learning more about how Pay by Bank with Volt can save your business time and money? Get in touch.