How payment processing fees work in fintech
Every time a card is tapped, a small slice of the sale disappears before the money reaches the merchant. In the UK that slice is usually somewhere between 0.3 and 2 per cent. Where it goes, and who decides, is one of the least understood mechanisms in finance and one of the most fought over.
This is the last of four Disrupts explainers on the new money rails. It takes a single card payment apart, names every party that takes a cut, and shows why the new rails described in the earlier pieces are aimed squarely at this fee stack.
The four parties
A card payment involves the customer's bank, which issued the card and is called the issuer; the merchant's bank or payment company, called the acquirer; the card scheme in the middle, usually Visa or Mastercard; and the merchant. The customer pays nothing visible. The merchant pays everyone.
The total the merchant pays is the merchant service charge. For a small UK business it is typically quoted as a single blended rate, say 1.5 per cent plus 20 pence per transaction. That single number hides three separate fees flowing to three separate parties, and the mix between them is where the economics live.
Interchange, the largest slice
Interchange is the fee the acquirer pays the issuer on every transaction. It is set by the scheme, not by either bank, and it is the same for every acquirer, which is why it is called a default rate. The justification is that the issuer carries the risk of the customer not paying, funds the interest-free period on a credit card and runs the fraud systems.
In the UK and the European Union interchange on consumer cards has been capped since 2015 at 0.2 per cent for debit and 0.3 per cent for credit, and those caps were kept in UK law after Brexit. Commercial cards and cards issued outside the area are not capped, which is why a corporate card or a tourist's card costs a merchant several times more to accept than a local consumer debit card.
The gap Brexit opened is the clearest illustration of how interchange works. Once UK-issued cards were no longer inside the EU cap, Visa and Mastercard raised the rate on online purchases between the UK and the European Economic Area fivefold, from 0.2 to 1.15 per cent on debit and from 0.3 to 1.5 per cent on credit. The Payment Systems Regulator proposed a cap in 2023, Visa, Mastercard and Revolut challenged its power to impose one, and on 15 January 2026 the High Court ruled the regulator could. The rate for that corridor is now heading back down.
Scheme fees, the fastest-growing slice
The second component is the scheme fee, which Visa and Mastercard charge both the issuer and the acquirer for use of the network: authorisation, clearing, settlement, fraud tools, and a long list of assessments that few merchants have ever seen itemised. Scheme fees are not capped. The Payment Systems Regulator's market review found they had risen substantially in real terms over five years with no corresponding change in service, that pricing was too complex for acquirers to understand let alone challenge, and that the two schemes faced no effective competition. In July 2026 it imposed transparency and governance requirements on both schemes, and a remedies phase that could include pricing measures is expected around the turn of the year.
The acquirer margin, the negotiable slice
The third component is what the acquirer keeps. This is the only part a merchant can negotiate, and it is where the fintech sector actually competes. Stripe, Adyen, Checkout.com, SumUp, Square and the bank-owned acquirers all buy the same interchange and pay broadly the same scheme fees; what differs is the margin they add, the software wrapped around it, and how they present the price.
There are two ways to present it. Interchange-plus pricing passes the interchange and scheme fees through at cost and adds a stated margin, say 0.2 per cent plus 10 pence. It is transparent and is what large merchants get. Blended pricing rolls everything into one rate, which is simple but means the merchant pays the same on a cheap domestic debit transaction as on an expensive commercial credit one, and the acquirer keeps the difference. Small merchants are almost always on blended pricing. The regulator's own benchmark work suggests a small UK business on a blended rate can pay two to three times the underlying cost of a domestic debit payment.
On top of the percentage sit fixed costs: a per-transaction pence fee, gateway fees for online payments, terminal rental, PCI compliance charges, chargeback fees when a customer disputes a payment, and a currency conversion margin on foreign cards. On a £10 coffee the fixed fee can matter more than the percentage.
A worked example
A UK shop sells a £100 item on a UK consumer debit card, with a blended rate of 1.4 per cent plus 20 pence. The merchant pays £1.60. Of that, 20 pence is interchange to the customer's bank, roughly 10 to 15 pence is scheme fees to Visa or Mastercard, and around £1.25 stays with the acquirer. On the same sale with a corporate credit card issued abroad, interchange alone can be £1.80 or more, so on blended pricing the acquirer may lose money on that transaction and recover it on the next hundred debit ones.
Under interchange-plus at 0.3 per cent plus 10 pence, the same £100 debit sale costs the merchant about 65 pence all in. The difference is not the network; it is the pricing model.
Where the new rails come in
Account-to-account payments through open banking, which move money directly between bank accounts without a card, cost a merchant a flat fee of a few pence to a few tens of pence, because there is no interchange and no scheme. They have grown fast for bill payments and top-ups but are still a small share of retail because they lack the card's convenience and its chargeback protection.
Stablecoin settlement, described in the second explainer in this series, costs single-digit basis points on the transfer leg. The on-ramp and off-ramp providers charge a spread, and a merchant-facing provider such as Stripe still applies a processing fee, typically around 1.5 per cent for stablecoin acceptance today, so the customer-facing price has not yet collapsed. What has changed is that the underlying settlement cost is now close to zero, which puts a ceiling on what the card model can charge for the same job over time.
Tokenised deposits, in the third explainer, aim at a different part of the stack: the interbank settlement that sits behind every acquirer and issuer. If banks can settle with each other continuously on a shared ledger, the float and the funding cost inside the card system shrink, and with them one of the justifications for the fee.
What to watch
Three things will move UK payment fees in the next year. The Payment Systems Regulator's remedies on scheme fees, expected late 2026 or early 2027. The final level of the cross-border interchange cap now that the High Court has confirmed the regulator's power to set one. And the point at which a major acquirer prices stablecoin or account-to-account acceptance materially below cards for the same merchants, which would be the first real competition the card schemes have faced on price. The fee stack has been stable for a decade. The rails underneath it no longer are.