Last editedJun 20238 min read
There are several affordable and cost-effective options for businesses in the UK looking to process credit card payments. These solutions encompass a range of services that offer competitive pricing, transparent fee structures, low transaction rates, and comprehensive payment features, allowing businesses to maximise their revenue while minimising processing costs.
You want to make your products and services available to as many customers as possible. And you know the importance of offering multiple payment methods.
You also need to consider the costs associated with offering these payment methods. When it comes to processing credit card transactions, the fees that merchants encounter can vary significantly depending on the credit card processing solutions they choose.
Read more about credit card processing fees in the UK.
What are credit card processing solutions?
A credit card processing solution is essentially the middleman between the credit card company and a business receiving payment through a transaction made with the card. They can vary in quality due to the complex components involved, including payment networks and financial institutions. They also rely on emerging technologies and must abide by the guidelines provided by regulatory bodies.
The variance between different credit card processing solutions also includes the charges they apply to each transaction. When it comes to accepting credit card payments, there are several charges that need to be borne in mind:
Transaction fees (1 - 3% of each sale)
Authorisation fees (1 - 3p per sale)
Merchant service charges (vary, but usually around 0.25% - 0.35%)
And that’s just for starters. While transaction fees and authorisation fees vary by credit card provider, merchant service charges vary depending on who provides your credit card processing solutions. These companies are responsible for providing merchant services, enabling you to accept and process credit card payments on your behalf. Some additional fees and charges and what they mean include:
Set-up fee – an initial fee covering the set-up of the physical or virtual terminal.
Monthly fee – a fee charged if you fail to process the agreed amount of monthly credit card payments.
Minimum monthly transaction fee – the lowest amount charged each month on transaction fees.
Terminal rental – a recurring charge for the chip and PIN machines.
Early termination fee – a fee charged for ending a contract early, either fixed or determined by the time remaining on the contract.
Chargeback fee – a fixed fee for every transaction reversed.
Refunds – a fee for processing refunds (usually 30p to £1).
Authorisation charge – a fee due every time you authorise a credit card transaction (usually 1-3p per sale).
Non-secure transaction charge – a fee charged for high-risk payments like non-chip and PIN payments and non-pay-by-link online payments, plus mail and telephone payments.
PCI non-compliance – a fine for failing to comply with PCI DSS standards.
Cheapest merchant service providers
Merchant service providers may vary their fees depending on the size of your business and how many transactions they process. Many also have additional fees for add-ons like ensuring PCI compliance or using a virtual terminal.
Here, we take a look at some of the most cost-effective merchant services on the market.
Worldpay
Worldpay is one of the biggest card payment processors out there, responsible for managing more than 40% of the UK’s credit and debit card transactions. They have a good reputation for providing effective and affordable payment gateways, virtual terminals and other solutions
Charges are as follows:
1% credit card fees
2% debit card fees
4p authorisation fee
£9.95 monthly minimum
Sum-Up
Sum-up is a German mobile payment provider and a big hit in the UK – processing more than 100,000 credit card transactions every day. It specialises in POS systems and virtual terminals.
Charges are as follows:
1.69% credit transaction fees
2.95% +25p virtual terminal fees
First Data/Fiserv
First Data – now combined with Fiserv – has been around for more than 20 years and is very popular with UK SMEs. While it has some of the lowest fees, it also requires a lengthy 36-month contract.
Charges are as follows:
10p credit card fees
1.25% debit card fees
2p authorisation fee
£5 monthly minimum
Factors behind merchant service charges
Five main factors influence the prices charged by merchant services. These include the revenue generated by card payments to your company, known as card turnover, as well as the average card spend. The type of cards your company accepts may also influence the merchant service charge, as some less common cards may incur higher fees.
The amount of integration with payment providers also impacts the prices charged, as does the length of the contract agreed.
Is there a cheaper alternative to credit card processing?
Accepting credit card payments can be very expensive even with the right processing solutions. The average credit card processing fees for merchants can be high, and some are uncapped, with further fees involved if you want to accept cross-border payments. Additionally, credit card pricing is not transparent and will depend on the card issuer and other factors you cannot know in advance.
GoCardless provides a bank payment option that is cheaper and more reliable compared to credit cards. Bank payments such as Direct Debit offer an automated payment collection solution that’s easier to manage and much more cost-effective than card payments.
GoCardless offes merchants:
Much lower transaction fees: Read more about our pricing here. In contrast, with credit cards, the exact amount you’ll pay depends on two factors: the card network and your specific fee structure – usually, fees range between 1.5% and 3%. Bank payments like Direct Debit offer lower fees because they have less complex processing requirements. This stems from the fact that credit card payments are routed through a network of intermediaries, each of which adds a fee, raising the overall cost.
Transparency in pricing: besides being cheaper than credit cards, GoCardless takes pride in offering full pricing transparency. If you accept a £500 payment via credit card, you’ll lose between £7.50 and £15 of that payment. GoCardless offers no sign up costs, no commitments and no hidden fees - see pricing here.
Operational costs: In addition to the cost of processing, it’s important to consider the total cost of accepting credit card payments. Card payments fail at rate of 10 - 15% as they can be lost, expired or even stolen, causing a build up of manual admin, a squeeze on cash flow and customer churn. By contrast bank payments, don’t expire, or get lost or stolen and so enjoy a much higher success rate. With GoCardless, 97.3% of payments are successfully collected on the first try – helping you save time and money.
How to collect Direct Debit payments with GoCardless
1.
Create your free GoCardless account, access your user-friendly payments dashboard & connect your accounting software (if you use one).
2.
Easily set up & schedule Direct Debit payments via payment pages on your website checkout or secure payment links.
3.
From now on you'll get paid on time, every time, as GoCardless automatically collects payment on the scheduled date. Simple.
Summary
If a portion of the customer base pays on a recurring basis, such as via a payment plan, moving them to a Direct Debit system may significantly reduce payment collection costs.
Direct Debit is a payment method which puts you in control of incoming payments. They are pull-based, meaning you control the payment amount and date. And because payments are protected by the Direct Debit Guarantee, peace of mind is assured for the customer, too.
Reduce transaction fees, late and failed payments and tiresome manual admin.
Case Study: Perky Blenders
Perky Blenders, an East London coffee business, has experienced rapid growth in just seven years, expanding to four coffee shops, an online subscription service, and a wholesale supply business. Throughout their journey, they have relied on GoCardless for seamless and timely payments, benefiting both the business and its customers.
Co-founder Adam Cozens said:
"When I found GoCardless it seemed miles ahead of anything else. We took a closer look and its simplicity and usability shone through. We knew customers would trust it and that we’d be able to onboard them quickly."
Victoria Cozens, Perky Blenders co-founder, highlights the benefits of GoCardless, stating:
"The benefits of GoCardless, where do I start? They're excellent. When we onboard customers, GoCardless is very much part of the sign-up process. An online form simply links to GoCardless and it's all really seamless and effective."
Adam and Victoria emphasise the value of offering direct bank payment options:
"It's an expectation from larger businesses that you'll be able to pay via direct bank payment, so it’s definitely reassuring as a small business to be able to offer that service. We get feedback that it's a useful way for them to manage their payments with us.
It’s easier for customers to pay, so we get cash into the bank faster. We estimate we’ve saved about £20,000 on admin costs, so GoCardless is a real asset to our business.”
“It just cuts down so much time, time on the phone, time chasing emails, time following up. I think I estimate that I save personally two days a week of work just by using GoCardless.”
Get paid on time, every time with GoCardless Direct Debit. Fewer late & failed payments reduces tiresome manual admin.
We can help
When it comes to cost-effective solutions, GoCardless stands out with no sign up costs, no commitments, no hidden fees, and easy payment set-up through our user-friendly dashboard.
GoCardless makes it quick and easy to get started, and with no contracts or long-term commitment required, there’s no risk. You can set up instant, one-off, or recurring payments in the merchant dashboard in just a few clicks, and GoCardless automatically creates and sends all the necessary forms, doing all the heavy lifting for you. You can also connect to GoCardless via over 350 partner apps, such as Xero and Quickbooks.
You can also connect to GoCardless via over 350 partner apps, such as Xero and Quickbooks.
Cost-effective, secure and reliable recurring payment collection for small businesses.
"For ongoing monthly payments it’s perfect. You can easily adjust the subscription amounts and don’t suffer from the problem of expired cards." - Charles Cridland, Technical Director, YourParkingSpace
FAQs
What is the cheapest way for a business to take credit cards?
The cheapest way for a business to accept credit cards depends on factors like transaction volume, business size, and individual requirements. Usually, for SMEs, opting for a reliable payment service provider (PSP) that offers competitive rates and transparent pricing structures can be a cost-effective solution. This way, businesses can access affordable card processing solutions tailored to their specific needs, including the acceptance of major credit cards such as Visa, Mastercard, and American Express. Additionally, leveraging secure online payment gateways integrated with the PSP's platform enables businesses to reduce the overhead costs associated with hardware terminals or point-of-sale systems, further enhancing affordability.
Additionally, businesses may consider utilising card processing solutions that leverage direct bank transfers or Direct Debit schemes, as these payment methods often incur lower transaction fees. To make sure businesses select the most affordable credit card processing solution, it’s imperative to consider factors like setup costs, recurring fees, transaction fees, and any additional charges.
Which payment gateway is the cheapest?
When considering the cheapest reputable payment gateways in the UK, several providers stand out for their competitive pricing and industry trustworthiness. Here are a few examples:
PayPal: PayPal is a well-established payment gateway that offers affordable pricing plans for businesses of all sizes. With transparent transaction fees and no setup costs, it provides a cost-effective solution for accepting credit card payments online.
Stripe: Stripe is another popular payment gateway known for its competitive pricing structure. It offers transparent pricing with a pay-as-you-go model without any setup or monthly fees. Stripe's pricing is based on a percentage of the transaction value, making it particularly attractive for businesses with lower average ticket sizes.
Square: Square is a comprehensive payment solution that caters to both online and in-person payments. It offers competitive rates with no monthly fees or long-term contracts. Square's transparent pricing and ease of use make it an affordable choice for small to medium-sized businesses.
Worldpay: Worldpay is a widely recognised payment gateway that provides tailored pricing plans to suit different business needs. While it may not always be the absolute cheapest option, it offers competitive rates and reliable infrastructure, making it a trusted choice for many businesses.
How much does it cost to start credit card processing company?
it's important to note that the actual cost will depend on several factors specific to your business, such as the scope of operations, target market, desired level of technology and security, and regulatory requirements. While it's difficult to provide an exact cost, starting a credit card processing company can range from approximately £50,000 to £500,000 or more. This estimate takes into account the various expenses involved, including licensing and compliance, infrastructure and technology, security measures, staffing, marketing, and reserves.
What is the average discount rate for credit card processing?
On average, discount rates for credit card processing range between 1.5% to 3.5% of the transaction amount. However, it's important to note that this range is an approximation, and actual rates can vary significantly. For some businesses or industries deemed higher risk, the rates might be higher, while low-risk businesses with a high transaction volume and established processing history may be eligible for lower rates. It's common for credit card processors to structure their pricing plans based on interchange-plus or flat-rate models. Interchange-plus pricing involves passing on the interchange fees charged by card networks (Visa, Mastercard, etc.) directly to the merchant, along with an additional markup from the processor. Flat-rate pricing simplifies the fee structure by charging a fixed percentage for all transactions, irrespective of the interchange rate.
How can I pay someone with a credit card without a fee?
Credit card transactions typically involve processing fees. However, there are a few alternative methods you can explore that might help you pay someone without incurring in credit card processing fees:
Person-to-person payment apps: Utilise person-to-person payment apps such as Venmo, PayPal, Cash App, or Zelle. These platforms allow you to transfer funds directly from your bank account or linked credit card to the recipient's account. While there may be fees associated with certain transactions or specific features within these apps, sending money from your bank account is often fee-free.
Bank transfers: Consider initiating a bank transfer or electronic funds transfer (EFT) from your bank account to the recipient's bank account. Many banks offer free or low-cost options for transferring funds between accounts, especially if both parties have accounts with the same bank.
Cheques: Writing and mailing a personal or business cheque to the recipient is another option. However, this method can be less convenient and may involve potential delays in processing and receiving the funds.
Cash or in-person payments: If possible, paying the person directly with cash or arranging an in-person payment can help you avoid credit card processing fees altogether. This method may not always be practical or feasible, especially for remote or online transactions.
