Each time a customer uses a credit card to buy something, the retailer pays a charge. An acquiring bank makes the charge because it accepts payment on behalf of the retailer. A credit card company such as Mastercard is a separate body from an acquiring bank and lays down the terms and fees of the transactions. The involvement of acquiring banks and credit card companies in transactions means that charges to retailers can be complex.
A major retailer that does a lot of credit card business is in a strong position to negotiate transaction charges with acquiring banks and credit card companies. Small retailers have to accept the charges imposed on them. The charges for each transaction therefore vary between one and three percent. A large retail company that accepts credit cards could pay a transaction charge of £1.00 when a customer makes a purchase that is worth £100.00. A small retailer could pay a charge of £3.00 when selling the same product at the same price.
The transaction charges for Internet purchases using credit cards are higher than those for shop purchases. The credit card companies justify the higher charges because of the greater risk of financial fraud with online sales. Large online retailers negotiate credit card charges of two percent or less per transaction. Small online retailers pay charges of up to four percent for each transaction.
Additional merchant fees
Some credit card companies ask retailers for a set fee in addition to the percentage charge. This fee varies according to the policy of the credit card company, the size of the retailer and the nature of the retailer's business. Other factors that affect the fee are the number and value of credit card transactions the retailer has per month. A set fee could start at 10 pence and rise to several pounds.
Retailers face a further charge per month but this is not related to the number of transactions. This charge is for the lease of one or more credit card processing terminals. These are the machines into which a customer places a credit card to make a payment. The average charge per machine is £17.50 to £20.00 per month.