, Retail
A gift shop in Ludlow takes £14,200 on card in October. The owner was quoted 0.45% when she signed up and expects to pay about £64. Her statement shows £287.
Nothing on it is fraudulent. There is an authorisation fee of 2p per transaction on 1,140 transactions. There is a minimum monthly service charge of £25 that she is nowhere near using up. There is £29.99 for terminal rental, £9.95 for a PCI compliance service she did not know she had bought, and a non-qualified rate of 1.75% applied to every commercial and foreign card that went through the machine, which in a tourist town is about a fifth of them.
Every card payment is three fees wearing one coat
The price you pay to accept a card is built from three components, and only one of them belongs to the company you signed with.
Interchange is paid by your acquirer to the bank that issued the customer's card. It is the largest single element on consumer transactions and you cannot negotiate it, because it is set by the card schemes and capped by law. The caps that came in with the Interchange Fee Regulation, retained in UK law after Brexit, are 0.2% for consumer debit cards and 0.3% for consumer credit cards on domestic transactions. Commercial cards, corporate cards and cards issued outside the UK are not covered by those caps and cost you considerably more.
Scheme fees are paid to Visa and Mastercard for running the network. There are dozens of them, they vary by transaction type, and they have risen repeatedly. The Payment Systems Regulator has run market reviews into card scheme and processing fees and into cross-border interchange and has proposed remedies, so the position moves. Check where it has got to rather than relying on a number in an article.
The acquirer's margin is the third part, and it is the only one that is genuinely yours to negotiate. On a well-negotiated account it is small. On a blended rate sold to a small shop it can be several times the interchange underneath it.
Blended pricing hides the bit you could argue about
You will be offered one of two structures, and the difference between them is transparency rather than price.
A blended rate gives you one percentage for debit, one for credit, and possibly a third for "non-qualified" transactions. It is simple, and it is simple because it merges all three cost components into a single figure you cannot take apart. If your customer mix shifts towards debit cards, which cost the acquirer less, you keep paying the same and the acquirer keeps the difference.
Interchange plus plus, usually written IC++, itemises the three components separately: the actual interchange, the actual scheme fees, and the acquirer's markup stated as a fixed number of basis points plus a fixed amount per transaction. It produces a longer statement and a smaller total for most businesses above a modest volume, because you are only negotiating the third number and you can see what it is.
The reason small retailers are sold blended pricing is that it is easier to sell and easier to price generously. If your card turnover is meaningful, ask for IC++ and ask for the markup in writing. If the answer is that IC++ is not available on your account, that is information.
Two further things belong on the same page. Authorisation or transaction fees of one to three pence apply per transaction regardless of value, which matters enormously if your average basket is £4 and not at all if it is £400. And a minimum monthly service charge means a quiet January costs you the same as a busy December.
Surcharging is mostly not allowed and minimums mostly are
Since 13 January 2018 it has been unlawful under the Payment Services Regulations 2017 to surcharge consumers for paying by most debit or credit cards. That is a straightforward ban and Trading Standards enforce it. You may still surcharge commercial cards, and businesses that take large business-to-business payments do.
A minimum spend is a different thing. Refusing to take a card under £5 is not a surcharge on a payment, it is a condition of sale, and it remains lawful. It is also increasingly bad for you, because the customers who wanted to pay 90p by card now buy nothing, and the arithmetic on a 2p authorisation fee rarely justifies losing the sale.
Cash is not free either. A till that takes cash needs counting, banking, insuring and reconciling, and business banking charges for cash deposits are real money. The honest comparison is the total cost of accepting a pound by each method, not the card fee against zero.
The contract is the expensive part
The rate is negotiable. The contract is where the cost is locked in.
Merchant acquiring agreements commonly run for twelve to eighteen months with automatic renewal, and the notice period to leave can be ninety days. Terminal agreements are the genuine problem. They are often with a separate finance company, not your acquirer, they commonly run for 36 or 48 months, and they are non-cancellable equipment leases. You can move your acquiring to a better rate and still be paying £35 a month for three years on a machine you are not using.
Read for these before signing. The initial term and the renewal mechanism. The notice period and how notice must be given. Early termination charges, which on a leased terminal are usually the whole remaining balance. Whether the terminal is rented, leased through a third party or bought outright, and if leased, who from. Whether there are PCI compliance fees and non-compliance fees, and what you have to do to avoid the second one. Whether rates can be varied unilaterally and on what notice.
If you are a micro-enterprise or a small business, you may be an eligible complainant at the Financial Ombudsman Service, which since April 2019 covers businesses with turnover under £6.5 million, fewer than fifty employees and a balance sheet total under £5 million. That gives you somewhere to go about the acquiring relationship. An equipment lease with an unregulated finance company is a commercial contract between businesses and you will generally be held to it.
What to actually do about it
Get twelve months of statements and calculate your real effective rate: total fees divided by total card turnover. That single number is the only one that matters and almost nobody knows theirs.
Then split your volume by card type. If a large share is commercial or international, a blended quote that excludes them from the headline rate is meaningless and you need the non-qualified rate in writing.
Tender it properly every couple of years against three providers on the same basis, and keep the terminal contract separate from the acquiring contract so that changing one does not trap you in the other. A shop turning over £250,000 on card with an effective rate of 1.9% is paying £4,750 a year. The same shop at 1.1% pays £2,750. That is a member of staff for a month, and the only work involved is reading.
Where this shows up in the game
Shops are part of Business Baron's full game, and e-commerce is free to run. A cost that scales with turnover rather than profit comes out of the same margin as everything else, and gross margin is the number worth watching. A contract signed early tends to outlast the reasons you signed it.