Credit Card Processing Fees and Rates (2024 Guide)

Navigating the intricacies of credit card processing fees and rates is essential for businesses of all sizes. Whether you operate a brick-and-mortar retail store, an expansive e-commerce platform, or a service-based business, the ability to accept credit card payments is a necessity.

According to recent industry data, there were 2.12 billion debit and credit card transactions in the UK in November 2023, highlighting the importance of efficient payment processing systems.

However, amidst the convenience lies a crucial aspect that can significantly impact your bottom line: understanding the intricate landscape of fees and rates associated with credit card processing.

In this guide, we’ll provide you with a detailed breakdown of credit card processing fees and rates, focusing on key aspects such as merchant processing fees and the potential benefits of alternative payment methods like ‘Pay by Bank.’

Understanding Credit Card Processing Fees and Rates

Credit card processing fees consist of various charges incurred by merchants for processing credit card transactions. These fees typically include interchange fees, card processing fees, and scheme fees charged by payment processors. Understanding each component is essential for accurately assessing the cost of credit card processing.

Interchange Fees

Interchange fees are charges imposed by credit card networks like Visa and Mastercard for processing transactions. These fees are typically calculated as a percentage of the transaction amount plus a flat fee per transaction. The specific interchange rates vary depending on factors such as the type of card used (e.g., debit card, rewards card) and the nature of the transaction (e.g., in-person, online).

Interchange fees are regulated and capped at 0.3% for credit cards under UK payment systems regulation. This portion of the credit card processing fee is controlled by regulatory measures.

Card Processing Fees

These fees are charged by the merchant services provider or payment processor to facilitate credit card transactions. Card processing fees can vary widely, typically ranging from 1.5% to 3.5% per sale.

Various components contribute to these fees, including monthly fees, per-transaction fees, equipment lease or purchase fees for contactless payment terminals and card readers, and statement fees.

Additionally, fees may apply when a merchant processes refunds or chargebacks onto a customer’s card, among other charges.

Scheme Fees

Scheme fees, also known as assessment fees, are paid directly to the credit card network to enable businesses to accept payments using these credit cards. These fees can fluctuate based on several factors, including the payment type and transaction volumes. They typically range from as low as 0.01% per transaction to as high as 1%.

Do banks charge businesses for debit card transactions?  This is an important question, and the answer is yes. And how much do debit card transactions cost? Debit card transactions typically cost less for businesses compared to credit card transactions. While exact charges vary, interchange fees are capped at 0.2% per transaction, making Visa debt fees a cost-effective payment option for businesses.

 

The Rise of Alternative Payment Methods: Pay by Bank

While credit card processing remains ubiquitous, businesses are increasingly exploring alternative payment methods to reduce costs and streamline transactions. One such method gaining traction is ‘Pay by bank,’ also known as bank transfer or bank account debit.

Pay by bank allows customers to make payments directly from their bank accounts, bypassing the need for credit cards and associated processing fees. Instead of entering credit card details, customers authorise payments through their online banking portals, facilitating secure and cost-effective transactions.

Benefits of Pay by Bank for Businesses

  • Reduced Transaction Costs: Embracing Pay by Bank enables businesses to circumvent the fees typically associated with credit card processing. By accepting payments directly from customers’ bank accounts, businesses can sidestep interchange fees, assessment fees, and processing fees, leading to significant savings in transaction costs. This reduction in expenses directly contributes to improved profitability and financial sustainability for businesses of all sizes.

 

  • Enhanced Security: Pay by Bank transactions boast inherent security features by leveraging existing banking infrastructure and authentication protocols. When customers authorise payments through their trusted banking portals, it greatly diminishes the risk of fraudulent activities and chargebacks for businesses. With Pay by Bank, businesses can instil confidence in their customers by providing a secure payment environment, fostering trust and loyalty.

 

  • Streamlined Transactions: Pay by Bank transactions offer a simplified and frictionless payment experience for both businesses and customers. By eliminating the need for credit card details and manual data entry, pay by bank simplifies the payment process, reducing complexity and enhancing efficiency. This seamless transaction experience not only saves time for both parties but also improves the overall customer experience, leading to higher satisfaction levels and increased repeat business.


Conclusion

Credit card processing fees and rates are a significant consideration for businesses of all sizes. By understanding the components of these fees and exploring alternative payment methods like Pay by Bank, businesses can effectively manage costs, improve profitability, and enhance the overall payment experience for their customers.

At obconnect, we’re committed to empowering businesses with innovative payment solutions that streamline transactions, reduce costs, and drive growth.

Contact us today to learn more about our Open Banking services and how we can help your business thrive in the evolving digital landscape.

 

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