Interchange Fees: Current UK Regulations for 2026 and How to Reduce Them

Interchange fees, scheme fees, and processor markups are three types of fees that businesses pay when processing credit or debit card payments.

All three processing fees, collectively referred to as the Merchant Service Charge (MSC), often appear as a single charge on your merchant account statement. For this reason, it can sometimes be hard to know exactly how much you’re paying in interchange fees, which make up the biggest portion of the MSC.

In this guide, we’ll explain everything business owners need to know about how interchange fees work, including how much they cost and how they’re calculated. We’ll also cover current UK regulations governing the maximum amount you can be charged in interchange fees.

What Are Interchange Fees?

Interchange fees (also known as merchant interchange fees) are one of three card processing fees businesses must pay when accepting credit or debit card payments from customers. Between scheme fees and processor markups, they’re usually the largest, making them especially important for business owners to understand.

The interchange fee is paid to the bank that issued the customer’s card. For example, if a customer uses a Visa credit card issued by HSBC, the interchange fee goes to HSBC. This fee covers the cost of handling the transaction and the risk the issuing bank takes in approving the payment. The bank covers the transaction amount upfront and must wait until the customer pays their credit card bill to be reimbursed.

Merchants don’t pay the interchange fee directly to the issuing bank. Instead, the acquiring bank (the bank that holds the merchant account) automatically passes the interchange fee on during payment processing.

This means the merchant receives the transaction amount minus the MSC, which includes the interchange fee.

How Much Are Interchange Fees?

Interchange fees can vary widely depending on factors such as the card type, whether the transaction was processed in person or online, and the customer’s card-issuing bank’s location.

In the UK, interchange fees are capped at 0.3% for consumer credit cards and 0.2% for consumer debit cards. You’ll pay these maximum interchange fees for most transactions involving UK-issued consumer credit cards.

However, there are no caps on interchange fees for transactions involving business cards or credit and debit cards issued outside the UK. As a result, fees for these cards can be much higher. For processing an online payment with EU-issued cards, the interchange fee is approximately 1.15% for debit cards and 1.5% for credit cards.

Still, interchange fees are often lower in the UK than in other countries. In the US, for example, the average interchange fee is 1.8%.

Who Sets Interchange Fee Rates?

Although the bank that issued a customer’s credit card receives the interchange fee, issuing banks don’t set the rates themselves. Instead, interchange rates are set by the card networks, such as Visa and Mastercard. The card networks must, in turn, comply with the UK’s regulations on maximum interchange fees for domestic consumer card transactions.

Here’s a summary of interchange fees for the largest UK card networks:

How Interchange Fees Work

To understand who pays interchange fees and how they work, let’s look at the entire payment process when a customer uses their credit or debit card.

1. Initiation: A customer uses their card to make a transaction, and purchase details are sent to the bank that provides your merchant account (the acquiring bank).
2. Authorisation: The acquiring bank sends the transaction details over the card network (e.g., Visa or Mastercard) to the bank that issued the customer’s card (the issuing bank).
3. Approval: The issuing bank confirms that the customer has sufficient funds or credit for the transaction and may also conduct fraud checks. The issuing bank then sends approval over the card network back to the acquiring bank, and the transaction is confirmed.
4. Settlement: At the end of the day, your merchant account provider sends information on all approved transactions to the acquiring bank. The acquiring bank then sends these details via the card networks to all relevant issuing banks, which then send payments to the acquiring bank.
5. Payment: The acquiring bank deposits the funds into your business bank account.

The interchange fee is taken out during the settlement step. The payment the issuing bank sends to the acquiring bank equals the purchase amount minus the interchange fee.

Types of Interchange Pricing

Credit card networks add scheme fees, and merchant account providers add markups to the interchange fee, resulting in a total MSC that your business pays to accept debit and credit card payments. While interchange and scheme fees are fixed per transaction, provider markup is negotiable, and providers offer different pricing models to accommodate different types of businesses.

Here are the three most common card payment pricing models and how they work.

Interchange plus

With interchange-plus pricing, you pay the actual interchange and scheme fees for each transaction, plus a fixed provider markup.

The main benefit of interchange-plus pricing is transparency. Your merchant account statement shows the interchange fee, scheme fee, and provider markup broken down for each transaction. Because you’re paying the true underlying costs, interchange-plus pricing is often the most cost-effective option for merchants.

The trade-off is variability. Interchange and scheme fees can change from one transaction to the next, which means you won’t always know the exact cost of a card payment in advance. While this model can deliver the lowest overall pricing, the uncertainty can be challenging for small businesses that need predictable costs.

Tiered

With tiered pricing, transactions are classified by your merchant account provider as ‘qualified,’ ‘mid-qualified,’ or ‘non-qualified.’ The classification is based on factors like the type of card used and whether the transaction was in person or online—some of the same factors that determine the interchange fees for each transaction. Each category has its own fixed rate.

Tiered pricing often looks very attractive since the price that merchant providers advertise is the qualified rate. However, most transactions fall into the mid-qualified or non-qualified tiers, which are much more costly. Unless you can be certain that most of your transactions will fall into the qualified tier, this pricing model usually isn’t very cost-effective.

Flat rate

With flat-rate pricing, also known as blended pricing, you pay the same amount for every transaction, regardless of the actual interchange fee. Typically, flat-rate pricing is charged as a percentage of the total transaction amount plus a fixed amount, such as 2.9% + 30p.

Flat-rate pricing is highly predictable because you know exactly how much it will cost to process each card payment. The downside is that you’ll likely end up paying more overall than you would with interchange-plus pricing. The extra costs can be especially high for businesses that mostly process transactions with low interchange fees, such as payments involving UK-issued consumer cards.

Factors That Influence Interchange Fees

Vatsal Bhandari, a UK-based finance consultant and Certified Anti-Money Laundering Specialist, points out that card networks like Visa and Mastercard determine interchange fees through “a complex matrix influenced by factors such as card type, acceptance method, and risk level.”

Let’s look at these determining factors more closely.

Domestic vs. cross-border

For businesses in the UK, one of the most important factors determining your interchange fee is the card-issuing country.

UK regulations cap interchange fees when a UK-based business processes a UK-issued consumer credit or debit card. However, there are no caps for processing cards issued abroad, which means cross-border transactions can incur much higher interchange fees.

Read more on how to accept international payments in our guide.

Consumer vs. business card

Another huge factor determining your interchange fee is whether your customer uses a consumer or business card. UK caps on interchange fees apply only to consumer or personal credit and debit cards—not to business or corporate cards. As a result, you could pay much higher interchange fees for business cards. Issuing banks often use these higher fees to fund rewards programmes for businesses.

Credit vs. debit

Credit card interchange fees are typically higher than for debit cards. This is related to risk. With credit card payments, banks assume the risk that customers may not pay their credit card bills. UK regulations also allow higher interchange fees for consumer credit cards than for consumer debit cards.

Card network

Card networks like Visa, Mastercard, and American Express set their own interchange fees. So, all other factors being equal, you could pay different interchange fees for a Visa credit card transaction and a Mastercard credit card transaction.

American Express typically charges higher interchange fees than Visa and Mastercard, which is partly why some merchants decline AMEX cards.

Merchant category code

Every merchant is assigned a four-digit merchant category code based on the type of business they run. Some merchant category codes, such as those for charities or utilities, receive discounted interchange fees.

Transaction security and processing details

Whether a card is tapped, dipped, or swiped can make a big difference to your interchange fee. These payment methods carry different fraud rates, posing a significant financial risk to the issuing bank.

Contactless payments are the most secure and have the lowest interchange fees, followed by dipped EMV chip payments and then swiped payments. Card-not-present payments, which include online transactions, over-the-phone payments, and manually keyed-in payments, have the highest risk of fraud and the highest interchange fees.

“Ultimately,” says Bhandari, “interchange tends to favour low-risk transactions, no matter the merchant’s size or bargaining power.”

How Merchants Can Reduce Interchange Fees

Since card networks set interchange fees, businesses have limited options for reducing them. However, there are a few changes you can make to reduce your overall processing fees and qualify for the lowest possible interchange rates.

• Encourage debit cards: Debit card interchange fees are lower than credit cards, so encourage customers to use debit if possible. For example, you can offer a cash price that also applies to debit card payments.
• Consider disallowing AMEX: American Express has much higher interchange fees than other major card providers in the UK. You can legally refuse AMEX cards, but weigh up whether the cost savings are worth annoying customers who use this card.
• Switch pricing models: If you’re currently on a flat-rate or tiered pricing plan with your merchant account provider, consider switching to interchange-plus pricing. This is often the cheapest pricing available, even if you don’t know exactly how much each transaction will cost.
• Negotiate with your merchant account provider: You can’t negotiate with Visa or Mastercard to change their scheme fees, but you can negotiate with your merchant account provider to reduce their processor markup. Many providers are willing to offer lower rates to businesses with high transaction volumes.
• Use secure payment practices: “Merchants often overlook how much their operational choices can influence costs,” says Bhandari. “Small actions, like manually entering a card instead of dipping it, can subtly bump up the interchange fee.” Reduce this risk by placing contactless payment hardware and EMV chip readers prominently on your counter to encourage customers to tap or dip their cards rather than swipe or key in details, which can help keep interchange fees lower.