Interchange fees are the wholesale cost buried inside every card payment you take, and understanding them changes how you read every quote a provider gives you. In the UK, interchange on consumer cards is capped by law at 0.2% for debit and 0.3% for credit, yet most small businesses pay 1.69% or more per transaction. This guide explains where the rest of your money goes, what escapes the caps, and what you can realistically do about it.
What are interchange fees? The three-slice anatomy of a card payment
Every card fee you pay is really three fees wearing a trench coat. Interchange goes to the customer's bank, the one that issued the card. Scheme fees go to the network in the middle, Visa or Mastercard, for running the rails. The acquirer margin goes to your payment provider, and it is the only slice anyone competes on.
Interchange is the biggest regulated slice and it flows away from you regardless of provider: on a £100 consumer debit payment, roughly 20p goes to the cardholder's bank before anyone else is paid. Scheme fees add a smaller, less transparent amount on top.
Everything above those wholesale costs is your provider's margin, covering their hardware, support, fraud risk, and profit. When you compare providers, you are comparing that third slice, because the first two are essentially the same for everyone. Our card machine fees guide shows how these slices appear, or fail to appear, on real statements.
The UK interchange caps: 0.2% and 0.3%
Since regulation introduced under EU rules and retained in UK law, interchange on domestic consumer cards is capped at 0.2% for debit and 0.3% for credit. On a £10 coffee paid with a consumer debit card, interchange is about 2p. On a £100 credit card sale, it is about 30p. These are the wholesale numbers underneath everything you pay.
The caps exist because interchange is a strange market: the merchant pays the fee, but the customer's bank receives it, so banks historically competed to issue cards with the highest interchange, funding rewards with merchants' money. Regulators concluded merchants had no way to escape and capped the rates.
Two caveats worth flagging. The caps apply to consumer cards issued in the UK for domestic transactions, and regulatory details can shift, so check current terms if a precise figure matters to a decision you are making.
What is NOT capped: commercial cards and foreign cards
The caps have holes, and the holes are where statements get ugly. Commercial and business cards, the ones issued to companies rather than consumers, are not covered by the caps at all, and their interchange runs meaningfully higher. If you sell to business customers, a slice of your card mix costs more at the wholesale level than any consumer card.
Cards issued outside the UK are the other big exception: interchange on non-UK-issued cards can be substantially higher than the domestic caps, which is why businesses in tourist areas sometimes see nasty surprises on itemised statements. Our guide to accepting foreign cards digs into that one.
American Express sits outside the interchange system entirely, because it runs its own network and sets its own pricing. And on interchange-plus contracts, these uncapped cards are exactly where the extra cost lands on you rather than your provider.
Why your 1.69% is many multiples of interchange
Here is the arithmetic that surprises people. On a £100 consumer debit payment, interchange is about 20p, yet SumUp charges £1.69 and Square £1.75. Your provider is charging roughly eight times the interchange cost on that transaction. Before you reach for a pitchfork, look at what the gap buys.
The flat rate is an averaging machine. It covers cheap consumer debit taps and expensive commercial and foreign cards at the same price, absorbs scheme fees, funds the £19 reader, the app, the support desk, fraud screening and chargeback handling, and removes monthly fees, PCI charges and contracts. You are paying retail for a bundle, not wholesale for a wire.
Whether the bundle is worth it depends entirely on volume. At £1,000 a month of card sales, the flat-rate premium costs you perhaps £15 a month over a hypothetical at-cost deal, which is trivially worth it for the simplicity. At £30,000 a month, the same premium is hundreds of pounds, which is why bigger merchants graduate to other pricing.
Interchange-plus: buying closer to wholesale
Interchange-plus, sometimes written interchange++, is the pricing model where you pay the actual interchange and scheme fees for each transaction, plus a stated acquirer margin on top. Instead of one blended rate, your statement itemises the wholesale cost and the markup separately, so a consumer debit tap costs you far less than a commercial card payment.
The upside is transparency and, at volume, real savings: the margin might be a fraction of a percent, and you benefit directly from every cheap consumer debit transaction. The downside is complexity, since statements become long and variable, monthly costs bounce around with your card mix, and comparing quotes takes actual work. It is typically offered by traditional acquirers, and typically to businesses processing serious volume.
Who should chase it: merchants doing roughly £20,000-plus a month by card, with the patience to read statements. Who should not: small and seasonal traders, for whom the predictability of a flat rate is worth more than the theoretical saving. If you are near the boundary, get quotes and compare against your flat-rate total using our fee calculator.
How the caps changed the market
The interchange caps quietly reshaped UK card pricing. They squeezed the fee income that funded lavish credit card rewards, which is partly why UK cashback and points offers thinned out compared with the United States, where interchange remains uncapped and rewards remain rich. Merchants effectively stopped subsidising quite so many air miles.
The caps also made the flat-rate reader business viable at scale. With wholesale costs on consumer cards pinned near 0.2%, providers like SumUp, Square and Zettle could set one simple retail rate with a workable margin for small merchants, which is a big part of why a £19 reader with no monthly fee exists at all.
What the caps did not do is push most small merchants' prices anywhere near 0.2%, because the acquirer margin and everything it funds still sits on top. The wholesale price was regulated; the retail price was left to competition, which is where you come in.
What you can actually do with this knowledge
You cannot buy at wholesale: interchange is only accessible through an acquirer, and every acquirer adds a margin, so the game is minimising the margin for your volume. Under about £5,000 a month, a flat-rate provider is almost certainly right, and your only job is picking the cheapest one for your mix on our comparison page.
Above that, use interchange as your negotiating floor. When a salesperson quotes you a rate, you now know that roughly 0.2% to 0.3% of a consumer transaction is unavoidable cost and the rest is negotiable margin plus scheme fees. Asking for interchange-plus pricing, or at least an itemised statement, signals you cannot be fobbed off with a blended number.
And whenever a provider advertises rates from 0.99%, or similar, remember that the word from is doing heavy lifting: the low headline applies to capped consumer debit, while your commercial and foreign card payments cost more. The three-slice anatomy is the decoder ring for every quote you will ever receive.
FAQs
What are interchange fees in the UK?
Interchange is the fee paid to the customer's card-issuing bank on every card transaction, forming the wholesale core of your card costs. In the UK it is capped at 0.2% for consumer debit and 0.3% for consumer credit on domestic transactions, with scheme fees and your provider's margin added on top.
Why do I pay 1.69% if interchange is only 0.2%?
Because interchange is only one slice of the cost. Your flat rate also covers Visa and Mastercard scheme fees, the provider's hardware, support, fraud risk and profit, and it averages cheap consumer debit with expensive commercial and foreign cards. You are buying a retail bundle, not the wholesale rate.
Which cards are not covered by the interchange caps?
Commercial and business cards are not capped, and cards issued outside the UK can carry significantly higher interchange. American Express sits outside the interchange system entirely because it runs its own network. These uncapped cards are where itemised statements get expensive.
What is interchange-plus pricing and should I ask for it?
Interchange-plus passes the actual wholesale costs through to you plus a stated acquirer margin, itemised on your statement. It can save real money above roughly £20,000 a month in card turnover, but for smaller merchants the variable, complicated bills usually are not worth it compared with a simple flat rate.
