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How Much Does Credit Card Processing Cost?

Published 10/03/2020

 

Understanding the Differences Between Credit & Debit Cards

“That’ll be £30.01, please”. Great. You’ve gone over the £30 maximum contactless card spend at the petrol pump again. Now the question is, which card can you remember the PIN code to – your credit card or your debit card – because you stopped carrying cash long ago.

Of course, being able to remember a PIN number isn’t the only factor when it comes to choosing between credit and debit – there are other considerable differences too. 

If you decide to use your debit card, the money is deducted directly from your account. Whatever you’ve deposited can be withdrawn at will until your pot is empty – or until any overdraft facility is maxed out. However if you use your credit card, the purchase is charged to a line of credit that you are billed for at a later date – along with any interest that accrues.

Some people have a strong preference on which to use for certain purchases, such as their food shopping – or their weekly petrol payments. Some decide spontaneously. And some simply use credit cards to build up their credit rating. 

Whatever the reason, due to each card’s popularity, it’s wise for businesses of all sizes to accept both methods. 

 

The Main Credit Card Issuers

On the other side of the counter in our petrol station scenario, the sales assistant will take payments from a wide range of credit card issuers. 

The credit card issuer is responsible for the relationship between the cardholder and their accounts – including issuing statements, offering rewards, altering interest fees, and processing payments. They set the cardholder's credit limit, accept the associated risk, and ultimately aim to make a profit for the service they provide.

These issuers, which today include any number of well-established financial institutions, challenger banks, supermarkets and online-only services, all compete for your wallet space. Each one offers different benefits. Each offers various incentives. And each is serviced by large credit card associations, such as Visa, Mastercard and American Express. 

So, who are the major players today? 

Some of the most common names our service station sales assistant might see are those of Barclaycard, Capital One, HSBC, MBNA, NatWest, Royal The Co-Operative Bank, Royal Bank of Scotland, Sainsbury’s Bank, Santander, Tesco Bank and Virgin Money.

However, the most popular choices, according to a recent ‘Which?’ survey are American Express and Nationwide – both with a customer score of 79%

 

How Small Businesses can Benefit from Accepting Credit Cards alongside Debit Cards

 

65% of adults in the UK have a credit card. There were 3.2 billion payments made using credit cards in 2018 – which was an increase of 4% over the previous year. And by 2028, credit card payment volumes are forecast to reach 4.1 billion. These figures should be reason alone to consider accepting credit cards. But there are also a number of benefits specifically for smaller businesses:

- Increase sales

Credit cards can help you boost sales because your potential customer base will broaden, and customers are able to spend more on impulse too – unlike when they’re carrying a finite amount of cash in their pockets.

- Look more professional

Credit card acceptance can help you look more professional. By displaying the logos of the cards you accept, it legitimises your business and instils a sense of trust in your service. 

- Keep up with the competition

Many of your competitors will already be accepting credit cards – so to prevent customers shopping elsewhere, it makes sense to offer the same service and remain competitive.

- Improve cash flow

Because credit card transactions are processed rapidly, you don’t have to wait long for funds to clear. There’s also no need to spend time visiting the bank to manually deposit cash into your account. 

- Benefit from better protection

Credit card transactions are deposited directly, quickly and reliably. If a customer tries to use an expired, stolen or damaged card, the payment is simply denied. 

- Improve the customer experience

Choice is one of the key elements of good customer experience today, so it’s wise to accept both credit and debit methods – and allow consumers to use the one that suits them best

 

The Cost of Processing Credit Cards per Transaction

 

So, you like the sound of the benefits. But exactly how much does credit card processing cost?

The good news is that accepting credit cards is relatively inexpensive today and fees are much clearer than they used to be. What’s more, credit card processing has become a highly-competitive industry, which means processors are offering merchant service packages with rates that even the smallest of businesses can afford. 

Here are the key fees you can expect to pay:

- Merchant service charge

Credit card companies charge businesses for each transaction they process. Rates vary depending on the card and transaction type – with the most popular ones charging between 0.05-2% of the purchase price. 

- Chargebacks

If a customer who has paid for something with a credit card returns the item and wants their money back – or is granted a refund due to a fault or dispute – you have to pay a processing fee of around £10-20 for this ‘chargeback’. This is why some small businesses often establish ‘no refund’, or ‘exchange only’ rules. However, be aware that you can't establish a no refunds policy after a customer has bought something. If your policy wasn’t in place at the time of the transaction, you will have to honour the refund. Therefore, it’s a good idea to clearly state your no refund policy up front.

- Payment gateway fees

If you take cards online or over the phone, you will need a payment gateway – which usually costs around 6-10p per transaction in addition to a fixed monthly fee for the service.

- Authorisation fees

There is typically a charge for every authorisation on every transaction to test the payment method. This is priced at around 1-3p per transaction.

There are other costs associated with taking credit card payments, such as terminal hire, set up fees and PCI compliance fees, but these can be covered as part of a package from a trustworthy PSP (Payment Service Provider), such as Sage Pay. For a better idea of how much this would cost, why not request a quote here.

 

Conclusion on the Cost of Processing Credit Cards

Credit card processing fees are a common fear – and there’s little wonder. Traditionally, costs have been unclear and too complicated to understand. But it doesn't have to be like this anymore. 

By partnering with a reputable PSP like Sage Pay, everything can be explained clearly and you’ll soon learn that the fees are easily manageable business expenses – which are likely counteracted by the additional revenue gained by accepting credit cards anyway. 

With the popularity of cards only expected to continue increasing, now’s the time to fuel your business’s growth and accelerate sales by accepting credit cards and their associated fees.