1
Understand Card Fees In 5 Minutes

If you sell stuff by card, this chapter is designed to help you do two things. The first is choose between different payment providers. The second is understand those pesky fees – and what they actually mean.

We’re going to talk about two different types of payment providers, three different types of fee, and then cover the grisly details from your bank statement.

I. What Are My Choices?

To accept payments, all merchants have two choices:

  • 1

    A contract through an “acquirer”

    This will be through a company which is called an acquirer. Acquirers (sometimes called Merchant Acquiring Banks or Merchant Banks) are banks. (Note: this is not your business bank account!) You’ll have to set up an account, which will involve documents, identity checks, and about a week. They tend to charge gross fees which means the fees are deducted once a month from your account. Worldpay is probably the most famous of these. It works a little bit like a mobile phone contract.

  • 2

    Pay-as-you-go via a “payfac”

    So this isn’t just a different style of contract – it’s a whole different provider. Payment Facilitators (or payfacs) are technology companies. They hold an account with an acquirer on your behalf. You can get this working tomorrow, and there’s no contract, so you can stop processing when you like. They charge net fees which means that they are automatically deducted each time someone pays you – the money never appears in your account. iZettle is probably the most famous here.

 AcquirerPayfac
Contract2-4 YearsNone
SetupDays to WeeksMinutes
Card ReaderRented – for around £20/mBought – for around £50
Rate Type Blended
Interchange + +
Fixed rate
Billing FrequencyMonthlyBefore the money enters your account

Acquirer card reader

Payfac card reader

II. What's In A Fee?

Types of fee:

It’s clear that payfacs are a little more convenient than acquirers, but the most important thing is working out how much they cost! This can be difficult because they express their fees differently.

Payment Facilitators only do fees which are FIXED RATE – this means that it’s one rate for every card that gets used, no matter what the card.

Acquirers do fees which are on INTERCHANGE + + or BLENDED rates. (They can do FIXED RATE – but it’s very rare.)

What does this mean?

“The Interchange” – covered in detail in chapter 6 – is VISA or Mastercard’s fee, which goes up and down every year. This will be included in any bill, by any provider – but with interchange + + formats, they spell out exactly how much they’re giving to VISA and how much they’re keeping themselves.

Blended Rates are really very similar to Interchange + +, but they’re simplified. Most quotes you’ll receive from acquirers are in “blended” form – it makes it much easier to compare quotes. But be careful! People can sometimes write quotes in a way which is deceiving (more in chapter 6).

Fixed Rate means what it says. Regardless of the fact that VISA or Mastercard’s fee is changing all the time, a fixed rate stays fixed at the original percentage.

 Intechange++BlendedFixed Rate
FormatInterchange + 0.1% + 3p0.5% + 3p1%
Fees change depending on which cards get usedYesYesNo
Full breakdown of your fees availableYesSimplifiedYes
Available throughAn AcquirerAn AcquirerUsually a Payment Facilitator

Hot Tip

Quotes can be deceptive! They include and exclude different things.

ALWAYS ASK: does this quote include the interchange? Or is it ON TOP of the interchange pricing?

Google “interchange fees” and look on VISA or Mastercard’s websites. That’s what an acquirer has to spend to move the money.

If a quote offers less than 0.1% more than that, there’s something fishy going on. Nobody ever sells below cost.

But How Should I Choose?

Here at StoreKit, we think of payments as a commodity. It’s clear that PayFacs are a little easier and more flexible than acquirers, but our main consideration is what’s the cheapest. And that’s not as simple as you would think. It’s possible to work out which is cheapest, but you need a couple of bits of information.

1. Your Average Transaction Size

This is because blended rates are likely to be in the percentage + format shown above whereas fixed rates are likely to be in pure percentage terms.

If we were choosing between 0.55% + 3p and 1%, we’d need to work out whether the (“+ 3p”) component is greater than the percentage difference between the two rates (1% - 0.55% = 0.45%). If it’s greater, you’re better off with a percentage plus.

So in a coffee shop, where the average transaction size might be £5, 0.45% of a transaction is just 2.25 pence – they’d be better off on a fixed rate. In a clothes store, where the average transaction size is £20, 0.45% is equal to 9 pence, and they’d be better off going for percentage +. But that’s just an example – in the real world, we’d expect that businesses with an average transaction size of less than about £10 end up being better on fixed rates.

Change the slider to see how average values impact the real rate you pay:

£5
Effective rate at 0.55% + 3p1.15%
Effective rate at 1% Fixed1%

2. Your Processing Volumes

How much are people paying on card through your tills? This is your bargaining power. It’s the amount of business you represent to your payment provider. Like everything in finance, the bigger you are, the cheaper rates you get.

In our experience, acquirers are slightly more sensitive to size. If you process more than about £6K per month, acquirers start to get more competitive.

That said, payfacs do negotiate! It can be easy to forget this because there’s not the same “bidding” process you go through with acquirers. So if you have small average transaction sizes but a lot of business – like a coffee shop – it might be possible to get you on a good rate with a payfac.

3. Your Foreign Card Volume

This is probably less important than the other two, but a third thing which affects what’s cheapest is how many foreign cards you take. Remember, fixed rates via payfacs absorb differences in the interchange – which wobbles depending on what cards are being used.

Is your average spendaround £10?Sweet! But now it getscomplicated. Go to theACQUIRER chapter tofind out how to choose.You may be better offwith an Acquirer!Do you process morethan £6K per month?Emailhello@storekit.comand ask for a quickconsultation! We canhelp you choose.I’ve got mixed results!Do you accept lots offoreign cards?Remember, payfacsnegotiate. Go toPAYFACS to choosebetween them!This means you’relikely to be better offwith a payfac!Have you left it superlast minute?Emailhello@storekit.comand ask for helpYou need a payfac.Emailhello@storekit.comand ask to be put intouch. Order a cardreader before 4PM fornext day delivery!That’s Me!I need apayfac!Higher!I need anacquirer!Oh No!Less!Lower!

Recap!

Acquirers
Cheaper for card turnover above around £6K per month, depending
Cheaper for average transactions above around £6, depending
Slow to set up
Interchange + + or Blended Rate
Contract of a few years
Pay Monthly
Most famous is Worldpay
Rent your card machine
Both
Will negotiate!
StoreKit can help you get the cheapest rate 😉
Payment Facilitators
Cheaper for card turnover above around £6K per month, depending
Cheaper for average transactions above around £6, depending
Slow to set up
Interchange + + or Blended Rate
Contract of a few years
Pay Monthly
Most famous is Worldpay
Rent your card machine

III. Ready to compare providers?

These chapters are designed to help you find the cheapest quotes. If you’ve worked out whether you’d suit a payfac or an acquirer, click these links!

Otherwise, keep reading to understand a breakdown of your fees.

Card Network (VISA, Mastercard)Customer BankAcquirer Your CustomerPayment FacilitatorYour Business Bank AccountYouThe Interchange

IV. Understanding Your Fees

Total fee breakdown diagram

In our experience, payment bills tend to be filled with jargon and gobbeldygook. Unfortunately, this is sometimes a deliberate tactic. You can’t negotiate as well if you don’t know what the jargon means. But here’s a breakdown of what fees you’ll hear referred to actually mean, and where the money goes.

Fixed RateOpen SourceHosted
Payment
Facilitator
AcquirerAcquirer
1.75%0.5% + 3p0.5% + 3p
Interchange Fee This is VISA or Mastercard’s fee – for accessing their network All rolled into your fixed rate. Usually lumped together into a single fee – but divided by card type on your statement All spelled out separately on your monthly bill. Core Processing Costs
Network Scheme Fee or Card Authorisation Fee This is VISA or Mastercard’s fee for authorising the transaction
Acquirer FeeThis is your acquirer’s fee for authorising the transaction
MOTO/CNP Fees Stands for “mail order telephone order” or “card not present”. This will be part of a higher fixed rate – usually 2.5%This will be a discrete fee added to your monthly bill
“Chargebacks” – a customer has called their back and disputed a payment This is the cost of the item – it goes to the customer. This will be a discrete fee – withheld as you continue processing. It should be visible on your EPOS. This will be a discrete fee –in your monthly bill. This will be a discrete fee –in your monthly bill. Chargebacks
Chargeback Fee This is the cost of processing the chargeback – it goes to the acquirer. Typically £10-£20 per chargeback – withheld by your payfac. Typically £10-20 per chargeback – in monthly bill. Typically £10-20 per chargeback – in monthly bill. Administrative Costs
PCI FeeThis is your acquirer’s fee for complying with safe data lawsAll rolled into your fixed rate.In your monthly bill – £10-20 pmIn your monthly bill – £10-20 pm
Advanced Reporting/Insight feeThis is your acquirer’s fee for any information they send youNo fee.No fee.In your monthly bill – a small discrete fee
Statement FeeStands for “mail order telephone order” or “card not present”No fee.No fee.In your monthly bill – a small discrete fee
Terminal Rental Fee This is the cost of the card reader No fee – card reader bought outright. £15-20 per month in your monthly bill £15-20 per month in your monthly bill Hardware Costs
Early Termination Fee This is the cost of buying out of a contract No fee. Usually the cost of the remaining months card terminal rental – as one bill. Usually the cost of the remaining months card terminal rental – as one bill. Risk-based costs
Minimum Monthly FeeThis fee kicks in if you simply stop processing.No fee.Around £10-15 per monthAround £10-15 per month

V. WHAT’S NEXT?

1
Understand Card Fees In 5 Minutes
Learn what you’re looking at when you read your payments bills.
3
Other ways of taking payments
Accept cards over the phone and by invoice.
5
Acquirers (+ISOs) WorldPay First Data Bluebird
When would an acquirer be better?
6
Card Networks, The Interchange and all that
The academic view: how do payment actually work?
7
When Can I Negotiate?
How to get on better rates than your mates
8
E-Commerce 101
Ready for the next frontier?
Find out about StoreKit