Payment Fees Explained

Concept

Payment fees are the costs charged every time a card transaction is processed.

When a customer pays £100, the merchant does not receive the full £100.

Instead, a percentage is deducted to pay the different parties involved in moving the money.

In simple terms:

Payment fees are the cost of accessing the card payment infrastructure.

These fees are usually structured as:

• Percentage fee (e.g., 1.5%–3%)
• Fixed fee (e.g., £0.20 per transaction)

Framework — The Fee Stack

Every payment fee is made up of three core components:

Total Fee = Interchange + Scheme Fees + Acquirer/PSP Margin

1. Interchange (Issuer Fee)

• Paid to the issuer (customer’s bank)
• Usually the largest part of the fee

Covers:

• credit risk (if it’s a credit card)
• fraud risk
• operational costs of issuing cards

Think of interchange as:

the cost of accessing the customer’s money

2. Scheme Fees (Network Fee)

• Paid to card networks (Visa, Mastercard, etc.)

Covers:

• infrastructure
• transaction routing
• global standards

These are smaller but applied on every transaction.

3. Acquirer / PSP Margin

• Paid to your payment provider (Stripe, Adyen, etc.)

Covers:

• processing
• payout handling
• risk management
• platform UX and tools

This is the part you can most often negotiate or compare across providers.

Example — Real SMB Scenario

A customer pays £100 for a product.

Typical fee breakdown:

• Interchange: ~£1.20
• Scheme fees: ~£0.15
• PSP/acquirer: ~£0.65

Total fees:

£2.00 (≈ 2%)

Merchant receives:

£98.00

Important:

You usually see only one line:

“2.0% + £0.20”

But underneath, the fee is split across multiple parties.

Impact — Why This Matters