Expertise

The Hidden Costs of Card Processing: What Are You Really Paying?

Card processing fees are often more complicated than they appear, with hidden costs that can significantly impact a business's profitability. Beyond the typical transaction percentage, businesses may face compliance fees, device rental costs, authorisation charges, minimum monthly service fees, early termination penalties, and even statement fees. For a small business processing £20,000 in card payments monthly, these fees can add up to over £290, making the real cost much higher than the advertised rates. To avoid unnecessary expenses, it’s crucial to choose a payment provider with clear, transparent pricing that aligns with your business needs.

Sam Ghoreishi
Sam Ghoreishi
17-10-2024
person holding black android smartphone

Card processing fees are often more complicated than they appear, with hidden costs that can significantly impact a business's profitability. Beyond the typical transaction percentage, businesses may face compliance fees, device rental costs, authorisation charges, minimum monthly service fees, early termination penalties, and even statement fees. For a small business processing £20,000 in card payments monthly, these fees can add up to over £290, making the real cost much higher than the advertised rates. To avoid unnecessary expenses, it’s crucial to choose a payment provider with clear, transparent pricing that aligns with your business needs.

1. The Compliance Fee

The compliance fee is often presented as a necessary cost to ensure your business adheres to security standards like PCI DSS (Payment Card Industry Data Security Standard). This fee is supposedly meant to safeguard you against fraud and data breaches, but what many businesses don’t realise is that it’s often just an excuse for card processing companies to pad their bottom line. This fee can range from £5 to £40 per month, depending on your provider.

2. Device Rental Fees

If you use physical card readers or terminals, these often come with a device rental fee. On average, this fee might be anywhere from £10 to £30 per month per device. This cost quickly adds up if you operate multiple checkouts or have several locations. Worse still, you may find yourself locked into a long-term contract for these rentals, making it hard to switch to a better deal even if one comes along.

3. Authorisation and Transaction Fees

Beyond the standard transaction percentage (usually between 0.79% for debit cards and 1.2% for credit cards), you may encounter additional authorisation fees. Every time a card transaction is verified, some providers charge an extra fee, typically around 2-5 pence per transaction. For businesses with high volumes of small transactions, these seemingly minor costs can significantly affect your bottom line.

4. Minimum Monthly Service Charges

Some card processing companies impose a minimum monthly service charge. This means that if your processing fees don’t reach a certain threshold, you’ll be charged the difference. For example, if the minimum is £20 and your transactions only generate £15 in fees, you’ll still be charged the extra £5. This can be especially painful for seasonal businesses or those with variable sales.

5. Early Termination Fees

Many card processing contracts come with early termination clauses, which means if you want to switch providers or close your account before the end of your contract term, you could be hit with significant fees. This can range from a few hundred pounds to an entire year's worth of fees, discouraging you from seeking a more affordable option.

6. Reporting and Statement Fees

Think the statements you receive from your provider should be part of the service? Think again. Some card processing companies charge £5-£10 per month just for providing your transaction data in a readable format. It’s a minor fee on its own, but again, these charges can accumulate over time.

The Total Picture

Let's put it all together. Imagine a small business that takes about £20,000 in card payments each month, with 70% (£14,000) being debit card transactions and 30% (£6,000) being credit card transactions. Here's what you might actually be paying:

  • Debit Card Transaction Fees (0.79%): £110.60
  • Credit Card Transaction Fees (1.2%): £72
  • Compliance Fee: £15
  • Device Rental (2 terminals): £20
  • Authorisation Fees (£2000 transactions at 3p): £60
  • Statement Fee: £10
  • Minimum Service Charge Adjustment: £5

Total Monthly Cost: £292.60

On paper, it looks like you’re paying a small percentage, but the real cost adds up once the hidden charges are factored in. This is why it’s so important to fully understand what your provider is charging you, and why transparency should be a key factor when choosing a card processing solution.

How to Avoid These Hidden Costs

When choosing a payment processing partner, look for one with clear, straightforward pricing. Avoid contracts that lock you in for long periods, and ask upfront about all possible fees—including compliance, device rentals, and minimums. An integrated payment solution with transparent pricing can save you from a lot of these unnecessary headaches, ensuring you pay only what you truly need to.

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