TL;DR
The Merchant Service Charge on your statement has three components: interchange, scheme fees, and acquirer markup; only interchange is regulated.
UK domestic debit interchange is capped at 0.2% and credit at 0.3% by the Payment Systems Regulator; cross-border card rates are significantly higher.
Flat-rate and interchange-plus pricing structures have different implications depending on your card mix. Understanding which you are on affects your real cost.
Teya's pricing is transparent: no hidden PCI fees, no long-term contract, and no unexpected charges at the end of the month.
Imagine a convenience store owner in Manchester opening her monthly statement a year from now. She will notice that the actual effective rate he is paying on card transactions is quietly creeping up above the headline rate he was originally quoted.
When she calls his provider for answers, the explanation will likely take ten minutes and involve three separate fee categories she won't even know existed when she signs the contract.
This is highly likely to happen because card processing fees in the UK remain structured in layers, and most providers are still not incentivised to make those layers easy to read.
We'll break down the components of UK merchant card fees, explain the regulatory changes that have affected pricing, and outline practical steps to reduce what you pay per transaction.
What you are actually paying: the three layers of a Merchant Service Charge
Every time a customer taps or inserts a card, the total fee you pay, known as the Merchant Service Charge (MSC), is split into three distinct layers. Only one of these layers is capped by law:
Interchange Fee: The customer’s bank (e.g., Barclays, Lloyds) takes it. It's regulated, and by UK law, it’s capped at 0.2% for consumer debit cards and 0.3% for consumer credit cards.
Scheme Fee: The card network (Visa or Mastercard) absorbs this cost, and it's not regulated. This is a non-negotiable fee paid directly to the card networks for using their payment infrastructure.
Acquirer Markup: Your payment provider (e.g., Teya, Worldpay) takes it. This is the cut your provider pockets for processing the payment. Because it is completely unregulated, this is your primary negotiating lever when trying to lower your rates.
When a provider quotes you a single "headline rate" (like 1.5% per transaction), they are blending all three components into a single flat rate. This often makes it incredibly difficult to see exactly how much your provider is pocketing in step 3 versus what they are legally required to pay out.
Comparing interchange-plus vs flat-rate pricing
There are two common pricing models for UK merchants:
Flat-rate (or blended) pricing:
You pay one fixed percentage (e.g., 1.5%) on every single transaction, no matter what card is used. It's a good option for businesses with high tourist footfall, international clients, or heavy B2B corporate card usage. But if your customers mostly use standard UK debit cards, you are severely overpaying to subsidize the cost of more expensive cards.
Interchange-Plus Pricing
You pay the exact, low-regulated interchange cost (0.2% / 0.3%) plus a fixed markup to your provider. It's ideal for local, everyday consumer businesses (like a neighborhood convenience store or café). If a tourist pays with an international card, the higher cross-border fee is passed directly to you.
How UK interchange fee caps work and the impact of Brexit
The Interchange Fee Regulation (IFR) caps that apply to UK domestic transactions (0.2% on debit, 0.3% on credit) remain in place after Brexit. But the caps that previously applied to cross-border EU transactions were removed when the UK left the EU's regulatory framework.
The result: cross-border card-not-present transactions are significantly more expensive. According to the PSR, interchange rates on cross-border debit card transactions processed via Mastercard and Visa were increased to 1.15% and 1.5% respectively following Brexit — a fivefold increase for debit and a fivefold increase for credit compared to domestic rates.
For businesses that take online orders or phone payments from EU customers, this is a material change. For hospitality businesses with heavy tourist footfall, it shows up in higher effective rates during the summer months.
Why are business credit card fees higher than consumer card fees
Consumer credit cards issued in the UK have their interchange capped at 0.3%. Business credit cards do not, because they fall outside the IFR interchange caps.
This means that when a corporate buyer pays with a business credit card, the interchange component is higher than on a consumer card, and that cost is passed through to your MSC. Premium and rewards business cards carry some of the highest interchange rates.
For businesses that regularly take payment from other businesses (trade customers, corporate buyers, B2B clients) the card mix will skew toward business credit cards, which means a higher effective rate per transaction than a purely consumer-facing business.
Card machine rental vs transaction fees: the real cost comparison
Most card machine providers charge in one of two ways: a monthly rental fee plus per-transaction rates, or a combined monthly fee that bundles both.
The right comparison is not the isolated monthly fee; it is the total monthly cost at your actual transaction volume. A provider charging £14.99 per month with lower per-transaction rates may cost considerably less than a provider charging £10 per month but with higher rates, once you model it against your card volume.
These are the hidden costs to check for:
PCI DSS compliance fees (sometimes charged monthly as a "PCI non-compliance" fee if you do not complete an annual questionnaire)
Minimum monthly transaction fees
Early termination fees on locked-in contracts
Chargeback fees: the per-incident cost when a disputed transaction is ruled against you
Teya's pricing has none of the above: no PCI non-compliance fees, no long-term contract, and no hidden charges. See the full fee breakdown and compare our offerings with other providers to make the right decision for your business.
Is VAT charged on credit card processing fees in the UK?
Card processing fees are a financial service and are generally exempt from VAT under UK VAT legislation. Your provider should not be charging VAT on the MSC or transaction fees. If they are, that warrants a query.
Equipment, such as card machines themselves, may attract VAT on a purchase, but terminal rental under a service agreement is typically treated as a financial services supply and is exempt.
If you are VAT-registered and claim back input VAT, card processing fees will not give you anything to reclaim. But the absence of VAT on the fees themselves is also a clear line on your accounts.
How to pay less in processing fees to accept credit card transactions
The most effective lever is negotiation on the acquirer markup — the only component of your MSC set by your provider and varying by provider. But before you negotiate:
Understand your card mix. If 80% of your transactions are domestic debit, the interchange component is already low and regulated. The focus should be on your provider's markup and any ancillary fees.
Check your current contract terms: If you are in a long-term card machine contract with exit fees, the cost of switching may outweigh the rate improvement, at least until the contract ends.
Compare total monthly cost beyond the headline rate: Understand what you would pay at your actual monthly card volume with each provider's rate structure, including all fixed fees. The headline rate can be misleading.
Switching to a provider with transparent, published pricing and no long-term contract removes the two biggest structural barriers to keeping fees under control: hidden charges and exit costs.
Teya's card machines come with no PCI non-compliance fees, no lock-in, and next-day settlement, so your revenue lands in your account the following morning, regardless of when in the week the transaction was processed.
See Teya's Card Machines
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