Best Merchant Service Providers

How often do you think cash is used for purchases in the UK? While it's still useful to have, only 15% of all payments are made using cash, with credit or debit card payments being far more popular, as the cashless society takes hold.

Payments via debit cards have surged, and they now account for almost 20 billion transactions in the UK. 

If you run your own business, be it big or small, you'll want to give your customers the option of paying by card or cash. One way to do this is with a merchant account, which is a business bank account which allows customers to make payments to you.

In this article, I take a look at how to do this with merchant accounts, discussing how they work, why you might need one, as well as looking at the best merchant services.

Best Merchant Service Providers UK

How can you choose the best merchant account provider? I've picked out 6 of the best to help you decide:

Provider	Best For	Contract Length	Payment Plan
1. Square	No Monthly Fees	None	Pay-as-you-go
2. Worldpay	Growing Businesses	12 months	Monthly and Pay-as-you-go
3. PayPal	Big Business	None	Pay-as-you-go
4. Stripe	e-Commerce	None	Pay-as-you-go
5. Barclaycard Smartpay Anywhere	Pay-As-You-Go	None	Pay-as-you-go
6. SumUp	Simplicity	None	Pay-as-you-go

1. Square: Best for Zero Monthly Fees

Prices:

• Card terminal fee per transaction: 1.7%
• Payment gateway fee cost: between 1.9% and 2.59 plus a fixed fee
• Virtual terminal fee cost: 2.5%

Square offers merchant account services without a monthly fee structure. The only time you will pay Square a fee is when you make a sale, helping your business’ finances when sales are low.

When joining Square, you will not be tied into a long contract, and you can add additional services to your account, such as QR-payment availability. It ensures you receive your payments fast, sometimes the very next day.

Prices for a Square merchant account are per transaction only, requiring a 1.7% fee when a transaction is made by debit or credit card. 

Fees for payment gateway transactions are priced between 1.9% and 2.5% of the transaction value when processed. A fixed fee i

2. Worldpay: Best for Growing Businesses

Prices:

• Minimum card terminal fee per transaction: 0.95%
• Maximum card terminal fee per transaction: 2.75%
• Virtual terminal cost: £9.95 per month
• Payment gateway cost: £19 per month

Worldpay is a well-known merchant service provider, offering monthly and pay-as-you-go accounts. 

This is a good choice if you are new to business and you are aiming to grow and develop your business over time. You could begin your merchant account journey on a pay-as-you-go basis and then move to a monthly basis when you are ready.

Typically, a 12-month contract is required when joining Worldpay, although the contract length can be up to 3 years.

There's an all-in-one service available, with a card reader, payment gateway service and virtual terminal service.

In addition, you can achieve peace of mind with PCI compliance so you know you are meeting all obligations with data privacy and confidentiality. 

Prices for the Worldpay merchant accounts vary, usually around £9.95 per month for a virtual terminal and £19 per month for payment gateway services.

Card terminal fees vary between 0.95% and 2.75% per transaction, with transactions processed in between 1 to 3 days.

3. PayPal: Best for Big Business

Prices:

• Card terminal fees start at 1.2% + flat fee
• Transactions made by QR code start at 1.5% + flat fee
• Other transactions are charged at a fee of 2.9% + flat fee

PayPal is a trusted brand suited to large businesses with integrations to other software available. You will pay no monthly fees but there are transaction fees applied.

Card terminal fees start at 1.2% plus a flat fee. The flat fee will vary depending on the currency in question, although a 30p charge is applicable to British Sterling.

When a transaction is made using a QR code, the fee charged rises to 1.5% of the transaction, plus the relevant flat fee.

However, other transactions can see a substantial fee of 2.9% plus flat fee. So, for a £100 transaction, you might need to pay a fee of £2.90 plus a 30p flat fee when the currency in use is British Sterling.

4. Stripe: Best for e-Commerce

Prices:

• Minimum card terminal fee per transaction: 1.4% + 20p
• Maximum card terminal fee per transaction: 2.9% + 20p
• Minimum payment gateway fee per transaction: 1.4% + 10p
• Maximum payment gateway fee per transaction: 2.9% + 10p
• Minimum virtual terminal fee per translation: 1.4% + 10p
• Maximum virtual terminal fee per transaction: 2.9% + 10p

Stripe is a popular merchant account provider for online businesses, and you can also use Stripe to process physical transactions, with two varieties of card reader available for businesses.

When processing a transaction with a debit or credit card, you can expect to pay a fee of between 1.4% and 2.9% of the transaction value, plus a flat fee of 20p.

If you process an online purchase from a customer, a payment gateway fee will cost your business between 1.4% and 2.9% of the transaction value, plus a 10p flat fee.

Telephone purchases can also be made through a virtual terminal. In this instance, your business will be charged between 1.4% and 2.9% of the transaction value in addition to a 10p flat fee.

5. Smartpay Anywhere (Barclaycard): Best for Pay-As-You-Go

Prices:

• Minimum card terminal fee per transaction: 1.6%
• Custom plans can be created to provide bespoke rates
• Virtual terminal cost: from £15 per month
• Payment gateway cost: from £20 per month

Smartpay Anywhere is a pay-as-you-go merchant service from Barclaycard. This is a great choice for new businesses, particularly sole traders, as you're not locked into a long contract.

The minimum card terminal fee for each transaction processed is 1.6%, although you can contact Smartpay Anywhere to create a custom plan with bespoke rates.

Costs for a virtual terminal to be added to your account start at £15 per month and can rise as high as £75 per month.

Additionally, including a payment gateway to your account will cost you between £15 to £75 per month.

6. SumUp: Best for Simplicity

Prices:

• Card terminal fee per transaction: 1.6%
• Virtual terminal fee cost: 2.5%
• Payment gateway fee cost: 2.5%

SumUp offers a simple yet effective merchant account for businesses, providing clear fees and flexible adaptability to suit your business needs.

Integrate your SumUp merchant account with QuickBooks, automatically uploading transactions processed by your merchant account to your QuickBooks accounting software.

Tailor SumUp to suit your business, choosing the card reader to meet the needs of your business and transactions. You can also add a payment gateway service to your account for online purchases and a virtual terminal for telephone payments.

Fees are clear and concise with SumUp. You will pay a fee of 1.6% of a transaction value when a payment is made via debit or credit card. Fees of 2.5% are applicable when processed through the payment gateway or virtual terminal.

At a Glance: Pros and Cons of a Merchant Account

Here are some pros and cons of merchant accounts for your business:

Pros

✔️ Customer satisfaction: The majority of customers want to pay for purchases using a debit or credit card, or a digital payment through their mobile phone. You should also be able to access multi-currency transactions for your business.

✔️ E-commerce: Using a merchant account ensures you can sell goods and services online.

✔️ Security: The chances of fraud occurring are reduced as transactions can be more secure than paying with cash.

✔️ Assistance: Whichever merchant account service provider you decide to go with, you will receive assistance and help as and when you require it.

Cons

❌️ Hackers: With all types of technology, there will always be a risk that your business could be hacked by criminals.

❌️ Approval process: The approval process to secure a merchant account can be long.

❌️ Costs: A merchant account comes with a range of costs.

❌️ Fees per transaction: For every transaction processed, you will be charged a fee, typically between 1% to 5% of the transaction value.

What Is a Merchant Account?

A merchant account is a type of bank account that processes transactions for your business. So, every time your business makes a sale, the merchant account processes the sale and ensures the financial transaction is safe and secure.

Your business cannot accept debit and credit card transactions without a merchant account.

An example of a merchant account service provider is Visa merchant services. You can use Visa to process payments in your business, acting as a go-between or third party between your business and the customer. 

The purpose of Visa is to safeguard the payment from the customer’s bank account to your business account when a transaction is made.

Another popular example of a merchant account service provider is Mastercard merchant services, a provider that is growing in popularity across Europe although their fees tend to be higher.

How Does a Merchant Account Work?

Merchant accounts work to process transactions so customers can make sales with a debit card or credit card. 

Here is the 4-step process of a debit card or credit card transaction and how a merchant account works:

• Step 1 — The first step of the process involves a transaction made by the customer. You need to take a card payment from your customer.
• Step 2 — Once the customer touches their contactless debit or credit card on the reader, or enters their PIN, their details are sent to the merchant account.
• Step 4 — The customer’s bank, the issuing bank, informs the acquiring bank and merchant account whether the transaction has been approved.

How Can Customers Make Card Transactions?

Card transactions are typically made via one of three processes:

Card Reader

When customers make purchases with debit or credit cards in a store, the business owner needs a card reader for this transaction to take place. 

Today, most people will choose to use the contactless function of their debit or credit card, with 15.4 billion contactless transactions made in the UK to date. There are now 135 million contactless cards in the UK, making 88% of all debit card transactions.

However, almost all card readers still accept chip and PIN payments whereby the customer will insert their debit or credit card into the card reader for the transaction to take place.

Online Payments

Increasingly, online payments are becoming more common and 82% of the UK population now prefer to shop online.

When online payments are made, the business utilises a payment gateway that emits the payment details of the customer to the merchant account. Businesses might choose to use an internet merchant account if they are predominantly an e-commerce online business.

Telephone Transactions

Taking payments for purchases over the phone is a secure payment method that requires a virtual terminal. 

The employee answering the customer’s telephone call will use a webpage supported by the merchant account, requiring the employee to enter the debit or credit card details of the customer.

Does My Business Need a Merchant Account?

Your business only needs a merchant account if you plan to accept debit card and credit card transactions from customers. If you want to remain as a cash-only business, you do not need a merchant account.

How Do I Get a Merchant Account?

To apply for a merchant account, you'll need to make an application and complete all necessary documentation, submitting any evidence required.

Once your application is complete and all documentation has been submitted, the merchant account service provider will assess your application and inform you of the approval.

Setting up the account can take a while to complete due to the necessary checks and approval processes.

How Can I Get a Merchant Account?

Your business must be registered officially so you can open a merchant account. In addition, you will need to provide your business name and contact information as well as your employer identification number if you have one.

Further details concerning your business could also be required, such as the nature of your business and financial documents, such as tax returns. You will also need to declare any previous merchant accounts held by your business.

Your credit history and the age of your business will also be assessed. A business that has been open longer will be viewed more favourably, as will a business with a good credit history.

Are There Different Types of Merchant Accounts?

There are 4 different types of merchant accounts you could use in your business:

1. Aggregate Merchant Accounts

If you run a small business, the aggregate merchant account option is a great choice as there are typically no set-up costs and or monthly costs. 

The only fee an aggregate merchant account will charge you is a small percentage of the transaction every time you make a sale.

In a way, an aggregate merchant account acts as a shared merchant account, teaming you up with other businesses of a similar nature in a pool. This payment processing method ensures that your merchant account fees remain low so your business can prosper. 

Examples of aggregate merchant accounts include PayPal business services as well as Payzone, providing accessible options so your business can begin to accept debit and credit card transactions.

2. ISO Merchant Accounts

If you prefer to create your own merchant account as opposed to pooling resources with others, an ISO merchant account could be the best option.

An ISO merchant account will allow a flexible merchant account agreement to be created, tailored to the needs of your business. 

You will need to pay an upfront one-off cost when joining a merchant account service provider offering an ISO merchant account, however, as well as monthly fees and charges. 

To be considered for an ISO merchant account, you will need to reach the required sales threshold to be considered. The lowest sales threshold for an ISO account falls at around £80,000 per year for Visa, whereas the highest sales threshold is required by Mastercard at £800,000.

Typical examples of merchant account service providers that utilise ISO merchant accounts include Lloyds Bank, Worldpay and HSBC Bank.

3. High Risk Merchant Accounts

High-risk merchant accounts may be a good option if you have a bad credit score. Nothing is stopping a person with a bad credit history from running a business, so accepting credit and debit card transactions from customers should also be accessible.

However, it is not just the credit history of the business and business owner that could determine a high risk enterprise. The nature of your business can also impact this, with travel businesses being considered high risk due to the possibility of cancellations in travel.

Businesses that deal in international transactions of a high value could also be considered high risk by a merchant account service provider.

Examples of providers who offer high risk merchant accounts include Verotel and Durango.

4. Internet Merchant Accounts

Accepting online payments requires an internet merchant account and is essential for e-commerce businesses that do not possess a store to accept cash payments. 

Some business owners make the mistake of thinking that only one merchant account is required for a business. 

However, you might need an aggregate merchant account to accept debit and credit card payments in store as well as an internet merchant account to accept online payments.

Examples of internet merchant accounts include PayPal, Clover, and Paymentsense.

How Much Does a Merchant Account Cost?

The cost of a merchant account will vary according to the type of account as well as the volume of transactions processed.

Your business may need to pay monthly costs, a one-off set-up cost, and charges per transaction.

Fees per Transaction

Debit and credit card transactions are typically charged per transaction, at a rate of 1% or 2% of the transaction value.

So, if a customer makes a purchase of £100 to your business and the merchant account charges a fee of 1%, you will be charged a fee of £1.

Merchant account providers will offer lower charges to businesses with high volumes of transactions. Typically, a higher fee will be charged by a merchant account provider for credit card payments.

Further fees may be charged for authorisation of the transaction, although this fee is usually a few pence per transaction. 

Monthly Fees

Your business may need to pay monthly fees to the merchant account provider, predominately a card terminal rental fee. This fee may cost anything from around £10 per month to £40 per month. A monthly service charge is also required.

Further monthly fees could include a payment gateway to process online payments, costing your business between £10 to £30 per month. Additionally, to complete telephone payments, a virtual terminal is required, costing your business between £10 to £20 per month.

A monthly fee some business owners may overlook is the fee for PCI compliance. PCI compliance is a legal requirement that all businesses must abide by when accepting card transactions and safeguards the data of customers. Most merchant account providers will add this fee to your merchant account however, for a small charge.

One-Off Costs

To acquire a merchant account, you will need to join the merchant account service provider and pay a joining fee of up to £100. A similar amount will also be payable if you decide to terminate the contract earlier than agreed and anticipated.

What Are the Benefits of a Merchant Account?

The benefits of a merchant account include the added convenience provided to the customer, allowing them the choice to pay via debit or credit card, as well as by cash.

Providing greater options for your customers will increase customer satisfaction and encourage a higher volume of sales for your business.

What Are the Disadvantages of a Merchant Account?

A merchant account can be vulnerable to fraud, just like other areas of technology. The process involving a merchant account incorporates numerous steps, with each step equally vulnerable to fraud.

Further disadvantages include the costs involved. You will need to pay an upfront one-off cost, if applicable, as well as monthly costs. These costs are the same regardless of the volume of purchases generated by your business. Therefore, if you do not sell as many products in one month, you will still need to pay the monthly costs.

Additional fees are charged for every transaction paid for via a debit card or credit card. This is typically a percentage of the amount paid for the purchase, usually between 1% to 5%.

Leading Merchant Account Providers: The Verdict

With so many merchant account providers available, it is essential to gain the best deal for your business. I've selected some of the best options around in this article, but the right choice for you will depend on your business and what kind of provider you're looking for.

If you want a simple merchant account provider, you could choose SumUp. You will only pay fees when a transaction has been made, keeping your monthly costs low.

However, if you are looking for the lowest transaction fees, Worldpay could be your best choice, offering transaction fees of only 0.95% of the transaction value. Monthly costs are lower than some other providers, and you can grow your merchant account with the business. 

Furthermore, although a Worldpay contract could be required, you can choose to opt for a monthly or a pay-as-you-go account to suit your business needs.

Related Guides:

• Best Cloud-Based Payroll Software Companies
• Best Merchant Accounts with No Credit Check