When UK businesses accept card payments, they often need a merchant account. But while these accounts are essential, the fees involved can be confusing. Many businesses underestimate the real cost, especially when hidden fees come into play. This guide will help you understand all the charges involved, so you can make informed decisions and avoid unnecessary costs.

What Is a Merchant Account?

A merchant account is a type of business bank account that allows companies to accept card payments. It acts as an intermediary between your business, the customer’s card issuer and your own business bank account. Funds from card payments are first processed through the merchant account, then transferred to your account after approval.

You can obtain a merchant account directly from a bank or through a third-party provider such as a payment service provider (PSP). While the service is essential for card payment processing, it comes with a range of fees, some of which are not immediately obvious.

Common Merchant Account Fees

Here are the standard fees most businesses can expect to pay when using a merchant account:

Transaction Fees

Every time you accept a card payment, you will be charged a transaction fee. This is usually a percentage of the transaction value plus a small fixed fee. For example, you might pay 1.5% + 10p per transaction. Rates may vary depending on the card type (debit vs credit) and whether the card is present during the transaction.

Monthly Fees

Most providers charge a flat monthly fee to maintain your merchant account. This can range from £10 to £50 per month, depending on the provider and the size of your business. Some PSPs include other services within this fee, such as access to a virtual terminal or reporting tools.

Authorisation Fees

This is a small charge applied every time a card is authorised, even if the transaction is not completed. It is typically a few pence per transaction and can add up for high-volume businesses.

Setup Fees

Some providers charge a one-off fee to set up your merchant account. This fee covers the cost of onboarding, running credit checks and connecting your account to payment infrastructure. Not all providers charge setup fees, so it’s worth shopping around.

Minimum Monthly Service Charges (MMSC)

If your transaction fees fall below a certain amount in a month, you may still be required to pay a minimum service charge. This means that even in quieter months, you’ll still have to pay a baseline amount to your provider.

Hidden Merchant Account Costs

While the above charges are commonly disclosed, there are several other fees that may not be clearly advertised.

PCI Compliance Fees

To comply with data security standards, providers may charge a PCI DSS compliance fee. This could be charged annually or monthly. Failure to meet these standards may also result in non-compliance fines.

Chargeback Fees

When a customer disputes a transaction and initiates a chargeback, your provider may charge you a fee, typically between £10 and £30 per incident. If chargebacks are frequent, they can become a significant cost.

Early Termination Fees

Some contracts lock you in for a fixed term. If you leave early, you may face an early termination fee, which could amount to several hundred pounds. Always check your contract terms carefully.

Gateway Fees

If your merchant account is used in conjunction with an online payment gateway, there may be an additional monthly charge for using the gateway, along with per-transaction fees.

Statement and Reporting Fees

Some providers charge for monthly paper statements or advanced reporting tools. These fees are often avoidable if you opt for digital-only communication or basic reporting.

Real-World Example: Comparing Provider Costs

Let’s say a small café processes £20,000 per month in card payments.

• Provider A charges 1.5% per transaction with no monthly fee, and no minimum charge. Total cost = £300 per month.
• Provider B charges 1.2% per transaction plus a £25 monthly fee and a £10 PCI compliance fee. Total cost = £295 per month.

While Provider B seems cheaper, their pricing includes contractual obligations and other fees. If the café had a slow month, Provider B's minimum monthly service charge would still apply, making them potentially more expensive. This example shows why it’s essential to compare all fees, not just transaction rates.

How to Reduce Merchant Account Costs

Cutting merchant account costs requires vigilance and regular review of your payment processing terms. Here are some ways to lower your expenses:

Compare Providers

Prices and fee structures vary widely between providers. Use a comparison service like Expert Compare to review multiple offers tailored to your business needs. Comparing side-by-side makes it easier to find the most cost-effective solution.

Negotiate Fees

Larger businesses with high transaction volumes may be able to negotiate better rates. It’s worth asking providers if they offer volume-based discounts or lower monthly fees for longer contract commitments.

Monitor Your Statements

Regularly check your statements for unexpected charges or fee increases. Some providers change their fee structure without clear notice. Identifying these changes early helps avoid paying more than necessary.

Stay PCI Compliant

Avoid fines and extra costs by staying on top of your PCI compliance obligations. Completing the required questionnaires and maintaining a secure card processing environment can save you money.

Minimise Chargebacks

Implementing clear return policies, providing excellent customer service and using secure payment methods can reduce the likelihood of chargebacks. Fewer chargebacks mean lower costs.

What to Watch for in Contracts

Before signing a contract, check for the following:

• Length of agreement: Some contracts run for 12 to 36 months. Shorter contracts offer more flexibility.
• Exit clauses: Early termination fees can apply if you switch providers before your contract ends.
• Auto-renewal terms: Some agreements renew automatically unless you give written notice.
• Fee increases: Ensure the provider must notify you in writing of any planned fee increases.

Reading the fine print can prevent nasty surprises later. If anything is unclear, ask for clarification before committing.

Is a Merchant Account Right for You?

If your business takes a significant number of card payments, a merchant account is usually necessary. However, for very small or new businesses, payment facilitators like SumUp or Zettle can be a more flexible alternative. These options often bundle payment processing and hardware together without long-term contracts or monthly fees.

The Bottom Line

Merchant account fees can quickly add up, especially if you don’t understand the full fee structure. While some costs are clear from the start, others remain hidden until they show up on your statement. Understanding these fees is essential to managing your cash flow and improving profitability.

At Expert Compare, we help UK businesses compare merchant account providers so you can make an informed choice. If you’re ready to take control of your payment processing costs, use our quote tool to compare prices and find a provider that fits your business.

Answer a few questions and get matched with trusted providers who offer competitive rates tailored to your business. Save time, reduce costs and keep your payment systems running smoothly.