After COVID, Brits accelerated the adoption of card payments over cash and now, 85% of all spending is taken by credit and debit cards.
However, with £1 trillion spent on cards in 2024, new data produced by real-time payments company Yaspa, shows that fees from card providers could be costing Brits up to £20 billion each year.
Card providers charge a number of fees on every transaction, making card and payment providers billions in the process. These fees differ per provider and on the type of card.
For example, the total processing fee on debit card transactions are typically between 0.4% and 1.7%, while credit card transactions range from 0.7% and 3.5%. However, some transaction fees can be as high as 6%, costing both consumers and businesses more.
Therefore, if the average fees charged on all transactions in the UK was 2% last year, the fees charged on card transactions would amount to £20 billion. This is significantly higher than alternative payment options that businesses could adopt to lower fees and save customers money. Calculations from Yaspa show UK businesses could save up to £13 billion in fees each year with new technological adoption in payments.
Amie Kadhim from Yaspa said, “Fees charges on card payments vary widely across the market, but could be costing businesses billions of pounds each year, costs they have to pass onto customers.”
“By using different payment methods and utilising new technologies, businesses could be saving up to £13 billion a year in fees, savings that can be passed onto consumers, helping keep more money in people’s pockets.”
“With the cost of living continuing to hit people and inflation continuing to push prices up, this industry is prime for disruption. With more secure, faster, and cheaper technology now available, there is a real opportunity to change the way we pay for goods and services and save businesses and individuals money.”
There are a number of fees payment providers charge on each card transaction. On top of the transaction fees, interchange fees are charged between 0.2% and 0.3% on consumer cards, and 1% and 1.9% on commercial, or business, cards.
There are also a number of flat fees businesses must bake into their costs. Authorisation fees are typically charged at between 1p and 4p per transaction. Service fees are around £10 to £30 for a small business. The cost of the physical card machine varies on the type but is usually charged between £50 and £200 upfront, but these are sometimes leased for around £10 to £30 per month, and setup charges can be as high as £100.
Furthermore, businesses accepting card transactions must pay a fee for PCI compliance, or Payment Card Industry Data Security Standard compliance, which protects cardholder data during transactions. This is around £10 per month for a small merchant, but this fee rises depending on the size of the business, the number, and value of transactions it handles. This means that in total, small businesses could be paying upwards of £300 to set up for card transactions before any ongoing fees are taken.
Since regulation came in 2018 to protect consumers from additional card fees, businesses cannot pass on the costs of card payments directly onto customers as an additional fee. While this leads to consistent prices for the general public, businesses have to pass this cost on through the price of goods and services, potentially raising prices more than necessary and costing people more money.
To combat rising costs, there are some alternatives businesses can offer and consumers can adopt to help lower fees and save businesses and customers money.
First, cash payments do not incur any transaction fees, and can be preferred over card payments for smaller value transactions. However, cash is less secure and still has costs to process, as well as a greater opportunity for error in accounting.
Secondly, debit card payments do incur lower fees than credit cards, normally between 1% and 1.5% lower than credit cards for interchange fees. However, transaction and authorisation fees remain, which continue to cost businesses money, which they have to pass on to consumers through higher prices.
Finally, open banking could be a much cheaper alternative for businesses and consumers while keeping the convenience of card and digital payments. In short, open banking doesn’t use the card networks as payments are made directly from one bank account to another. This means there are no card fees and costs are as low as 0.7%, over three times less than typical credit card fees.
Open banking transactions also settle instantly, meaning no more pending balances, and are secure, due to details not being shared from a card to the terminal, across the network and then to the business. Instead, transactions are settled directly between the customer’s and business’s account.
Therefore, if all of Britain’s card transactions were made via open banking, total fees paid would only be £7 billion per year, saving businesses and consumers up to £13 billion in fees alone.
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