Every time a customer pays by card, the merchant pays a fee. That fee isn't a single charge — it's a stack of costs from three different parties, each taking a cut before the money reaches the merchant's account.
Most businesses know they pay "around 2-3%." Few understand where that money goes, why the rate varies between transactions, or what they can actually control.
This guide breaks down exactly what credit card processing fees are, who charges them, how much they cost, and what you can do to reduce them — whether you're a merchant, a platform, or a SaaS company embedding payments.
What Are Credit Card Processing Fees?
Credit card processing fees are the costs charged to a merchant every time they accept a card payment. The total fee — often called the merchant discount rate (MDR) — is deducted from the transaction amount before the merchant receives their funds.
A customer pays £100 by card. The merchant receives £97.50. The £2.50 difference is the processing fee, split between three parties:
The card-issuing bank (the customer's bank)
The card network (Visa, Mastercard, Amex)
**The payment processor / acquirer** (the merchant's payment gateway or provider)
Each takes a portion, and the size of each portion depends on the card type, transaction method, merchant category, and the processor's pricing model.
The Three Components of Card Processing Fees
1. Interchange Fees
Interchange is the largest component — typically 70-80% of the total processing fee. It's set by the card networks (Visa, Mastercard) and paid to the card-issuing bank.
Interchange compensates the issuing bank for the risk of extending credit to the cardholder. The rate varies based on:
Card type — rewards cards and corporate cards carry higher interchange than standard debit cards
Transaction type — card-present (in-store, chip and PIN) is cheaper than card-not-present (online, phone)
Merchant category — supermarkets and utilities get preferential rates; higher-risk categories pay more
Region — EU interchange is capped by regulation; US interchange is set by the networks
Typical interchange rates:
Card type | UK / EU | US |
|---|---|---|
Consumer debit | 0.2% (capped) | 0.05% + $0.22 |
Consumer credit | 0.3% (capped) | 1.5% – 2.5% |
Commercial / corporate | 1.0% – 1.9% | 2.0% – 3.0% |
Rewards / premium | 0.3% (EU cap applies) | 2.0% – 2.5% |
In the EU, the Interchange Fee Regulation (IFR) caps consumer card interchange at 0.2% for debit and 0.3% for credit. This is why card processing is significantly cheaper in Europe than in the US, where no such cap exists.
2. Assessment Fees (Scheme Fees)
Assessment fees are charged by the card networks themselves — Visa, Mastercard, American Express. These cover the network's infrastructure, brand, and transaction routing.
Assessment fees are small relative to interchange — typically 0.02% to 0.15% per transaction. They're non-negotiable and applied uniformly.
Visa and Mastercard also charge additional scheme fees for specific scenarios: cross-border transactions, currency conversion, high-value transactions, and specific merchant categories. These "miscellaneous scheme fees" have been increasing year on year and now represent a growing cost for merchants processing international transactions.
3. Processor Markup
The processor markup is what your payment provider charges on top of interchange and assessment fees. This is the only component that's negotiable.
Processor markup covers the provider's costs: fraud screening, payment gateway infrastructure, settlement, reporting, customer support, and their profit margin.
The markup varies significantly between providers and pricing models. A small business on a flat-rate plan might pay 1.4% + 20p per transaction all-in, while a high-volume merchant on interchange-plus pricing might pay interchange + 0.15% + 5p.
Pricing Models: How Processors Package These Fees
Not all processors present fees the same way. The pricing model determines how transparent your costs are and how much room you have to optimise.
Flat Rate
How it works: One fixed percentage (and sometimes a fixed pence/cent amount) per transaction, regardless of card type or transaction method.
Example: 1.4% + 20p for EU cards, 2.9% + 20p for non-EU cards.
Who uses it: Stripe, Square, PayPal — most self-service processors default to flat rate.
Pros: Simple and predictable. Easy to budget. Cons: You overpay on debit transactions (where interchange is low) and subsidise rewards/corporate card transactions. At scale, the overpayment adds up.
Interchange Plus (IC+)
How it works: You pay the actual interchange fee + the actual assessment fee + a fixed processor markup.
Example: Interchange + 0.2% + 10p.
Pros: Full transparency. You pay exact cost on every transaction, plus a known markup. Debit transactions are genuinely cheap. Cons: Monthly statements are harder to read. You need to understand interchange categories to verify your bills.
Who uses it: Most traditional acquirers, plus processors like Adyen and Checkout.com for higher-volume merchants.
Blended Rate
How it works: The processor groups transactions into a few categories (domestic, international, corporate) and charges a blended rate for each. Simpler than IC+ but less transparent than true interchange pass-through.
Example: 1.0% for domestic consumer cards, 1.8% for international, 2.5% for corporate.
Pros: Easier to understand than IC+, cheaper than flat rate. Cons: The processor pockets the difference when actual interchange is below the blended rate.
Average Fee Ranges by Card Type and Scenario
Here's what credit card processing fees look like in practice, combining all three components:
Scenario | Typical total fee |
|---|---|
UK debit card, in-store | 0.4% – 0.7% |
UK credit card, in-store | 0.6% – 1.0% |
UK debit card, online | 0.5% – 0.9% |
UK credit card, online | 0.8% – 1.5% |
US credit card, online | 2.5% – 3.5% |
Corporate / purchasing card | 1.5% – 3.0% |
American Express | 1.5% – 3.5% |
International (cross-border) | 2.0% – 4.0% |
For a detailed breakdown of UK-specific rates across major providers, see our guide on card processing fees and rates for UK merchants.
In-Person vs Online: Why Online Transactions Cost More
Card-not-present (CNP) transactions — online, phone, and mail order — consistently cost more than card-present (in-store, terminal) transactions. The reason is risk.
Card-present transactions are verified at the point of sale. The chip is read, the PIN is entered (or contactless is tapped), and the card network can confirm with high confidence that the cardholder is present. Fraud rates are low. Chargebacks are rare.
Card-not-present transactions rely on the card number, expiry date, and CVV — all of which can be obtained without physical access to the card. Fraud rates are 2-3x higher than card-present. Chargebacks are more common. The issuing bank takes on more risk, so interchange rates are higher.
The difference adds 0.1% to 0.5% to the transaction cost, depending on the card network and region.
For businesses that take payments over the phone, there's an added layer: PCI compliance. Phone payments — whether through IVR, live agents, or AI voice payments — require secure handling of card data that never touches the merchant's systems.
How Platforms and SaaS Companies Handle Processing Fees
If you're building a platform where your users (merchants, sellers, service providers) accept payments, the fee picture changes.
The Markup Stack
Your merchants pay card processing fees. You, as the platform, can layer on your own markup — either absorbing part of the processing cost or adding a fee on top. The structure depends on how you've set up your payment infrastructure.
Single PSP model (e.g. Stripe Connect): Stripe charges the processing fee. You take a platform fee (application fee) from the payout. Your merchants see one combined rate. Simple, but you're locked to Stripe's pricing and can't offer merchants their own PSP choice.
**Multi-PSP model:** Your merchants connect their own payment provider or choose from supported options. Processing fees vary by PSP. Your platform fee is independent of the processing cost. This gives merchants more flexibility and often lower total costs. For a breakdown of this approach, see how platforms monetise payments.
What "Revenue Share" Means on Processing Fees
Many platforms earn revenue on payments through a share of the processing margin — the difference between what the platform charges the merchant and what the PSP charges the platform. With a single PSP, this margin is fixed. With multiple PSPs, you can optimise by routing merchants to the most cost-effective provider for their transaction profile.
Platforms using a payment layer like Shuttle can support 40+ payment providers through a single integration, giving merchants PSP choice while maintaining a consistent platform fee structure. The platform earns on every transaction regardless of which provider processes it.
How to Reduce Credit Card Processing Fees
You can't eliminate processing fees, but you can reduce them significantly. Here's what actually moves the needle:
1. Negotiate Your Processor Markup
Interchange and assessment fees are set by the card networks — you can't change them. But your processor's markup is negotiable, especially once you have meaningful transaction volume (£50K+ monthly).
Ask for interchange-plus pricing. If your processor won't offer it, get quotes from others who will. The processor markup is where the biggest savings are.
2. Reduce Your Effective Interchange Rate
You can't negotiate interchange directly, but you can influence which interchange category your transactions fall into:
Use Address Verification (AVS) and 3D Secure — transactions that pass additional fraud checks qualify for lower interchange categories
Submit complete transaction data — Level 2 and Level 3 data (line items, tax amounts, customer codes) qualifies B2B transactions for lower interchange in the US
Settle quickly — authorisations that aren't captured within 24-48 hours can be downgraded to a higher interchange tier
Avoid manual key entry — keyed transactions are more expensive than chip, contactless, or tokenised payments
3. Encourage Lower-Cost Payment Methods
Debit cards cost significantly less to process than credit cards (especially in the US). Some strategies:
Display debit as the default payment option
Offer bank transfer (open banking) as an alternative — no card processing fees at all
For recurring payments, direct debit is far cheaper than recurring card charges
4. Review Your Statements Monthly
Processors sometimes misclassify transactions into higher interchange categories, charge fees for services you don't use, or apply rate increases buried in contract amendments. Monthly review catches this.
Look for:
Downgrades — transactions that should qualify for lower interchange but were classified higher
PCI non-compliance fees — £50-100/month charged if you haven't completed your PCI SAQ
Dormant fees — charged if your account has low or no activity
Statement fees, gateway fees, batch fees — fixed monthly costs that may be negotiable
5. Choose the Right Provider for Your Volume
Small businesses (under £25K monthly) often do best on flat-rate pricing — the simplicity is worth the slight overpayment. Above that threshold, interchange-plus pricing almost always saves money.
High-volume merchants (£500K+ monthly) should explore payment provider options and consider working with multiple acquirers. Different providers offer better rates for different card types, regions, and transaction profiles.
For platforms processing across multiple merchants, a payment layer approach lets you route transactions to the most cost-effective provider for each scenario — without building and maintaining individual PSP integrations.
FAQ
What is the average credit card processing fee?
In the UK, the average total fee is 0.5% to 1.5% for domestic consumer cards, depending on whether the transaction is debit or credit and in-person or online. In the US, average fees are higher — typically 2.0% to 3.5% — because interchange is not regulated. The global average across all card types and regions is roughly 2.0% to 2.5%.
Who pays credit card processing fees — the merchant or the customer?
The merchant pays the processing fee. It's deducted from the transaction amount before settlement. Some merchants add a surcharge to pass the cost to the customer, but this is restricted or banned in several jurisdictions (including the UK for consumer debit and credit cards, following the Payment Services Regulations 2017).
Are credit card processing fees tax deductible?
Yes. Credit card processing fees are a legitimate business expense and can be deducted from taxable income. They appear as "merchant service charges" or "card processing costs" in most accounting systems. Speak to your accountant for specifics.
Can I pass credit card processing fees on to my customers?
It depends on your jurisdiction and card network rules. In the UK, surcharging on consumer debit and credit cards is banned. In the US, surcharging is allowed in most states but must be disclosed and cannot exceed the actual cost. Visa and Mastercard both have specific rules governing surcharging. An alternative is to offer a cash discount rather than a card surcharge.
Why are American Express fees higher?
Amex operates as both the card network and the card issuer (a "closed loop" model). It sets its own interchange and assessment fees without the competitive dynamics between separate issuers and networks. Historically, Amex has charged merchants higher fees in exchange for access to higher-spending cardholders. Rates have become more competitive in recent years, especially in the UK/EU, but Amex still typically costs 0.3% to 1.0% more than Visa or Mastercard.
Related Reading
Card Processing Fees and Rates for UK Merchants — provider-by-provider rate comparison for UK businesses
What Is a Payment Gateway? — how gateways fit into the processing chain
How Platforms Monetise Payments — turning payment processing into a platform revenue stream
Payment Layer Explained: Gateway vs Orchestrator vs PayFac — understanding where processing fees fit in the infrastructure stack
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