Acquirer markup explained: the part of your bill your provider controls

Part of Fees and pricing models. Start with the main guide: Interchange plus vs blended vs flat rate: which pricing model costs less?

Everyone who sells card services makes money on the difference between what the payment costs them and what they charge you. That difference is the markup. It pays for the provider's support, risk, technology and profit. Whether it is fair is something every business owner should be able to check.

The difficulty is that markup is rarely a single line. It can hide in a percentage, a per-transaction charge, a monthly fee or any combination. This guide shows how to find your provider's markup on any statement, how to compare markups between providers and what a sensible negotiation looks like.

What is acquirer markup made of?

On an interchange plus statement the markup is usually visible as its own line, often described as "processing fee", "service charge" or "acquirer fee". On blended and flat-rate statements it is invisible, because the pass-through costs and the margin are combined. You have to work it out.

Where can a markup hide?

A provider can earn its margin in several ways, and it is common to use more than one.

• A percentage of turnover. For example 0.20% on every payment.
• A fixed amount per transaction. For example 3p on every payment.
• Fixed monthly fees. For example a terminal rental, a gateway fee, a statement fee and a PCI charge.

A quote that shows a low percentage may carry its margin in the other two. The only fair comparison adds all three.

In this example the headline markup is 0.20%, which sounds small. The provider's total margin is £79.00, or 0.40% of turnover. Anyone comparing on the 0.20% alone would understate the cost by half.

How do you calculate your markup?

On an interchange plus statement

Add up the markup lines and the fixed fees.

1. Find the markup or processing fee lines (percentage and per-transaction).
2. Add every fixed monthly fee: terminal, gateway, statement, PCI.
3. Divide the total by your turnover.

On any statement, using subtraction

If the markup is not shown, work it out from the totals.

You need an estimate of interchange and scheme fees. If you know your card mix, you can calculate them from published rates. If you do not, you can ask the provider for them, or use a calculator that estimates them from your mix. The result will be approximate on a blended or flat-rate statement, but it shows the order of magnitude.

Example. A business takes £20,000 on a flat rate of 1.40%, with no monthly fee, so total fees are £280.00. A calculation from its card mix gives interchange of £73.00 and scheme fees of £24.00. The markup is £280.00 − £73.00 − £24.00 = £183.00, which is 0.92% of turnover. That is more than twice the 0.40% all-in markup in the interchange plus example above, for the same business.

Whether the flat rate is worth it depends on what else it offers: no contract, no monthly fee, simplicity. But it helps to know that the price of simplicity in this case is about 0.5 percentage points of turnover, or £104 a month. That is a decision the merchant can make with open eyes. See flat rate versus interchange plus break-even for how it changes with turnover.

How does per-transaction markup change the picture?

A per-transaction markup is a fixed amount. As a percentage of a sale it depends on the average sale. A markup of 0.20% plus 3p looks the same on every quote, but it is not the same cost for every business.

At a £10 average sale, the markup is 0.50%. At £100 it is 0.23%. So a quote with a low percentage and a high per-transaction fee suits a business with big sales and hurts one with small sales. It is the mirror image of a high percentage with no per-transaction fee. Our guide to authorisation and per-transaction fees explains the conversion.

What is a fair markup?

There is no universal figure. It depends on the size of the business, the risk, the service and the market. A very small business typically pays a higher markup than a large one, because the provider has fixed costs to cover. A business with good records, a stable history and large volume has more bargaining power.

Instead of looking for a single benchmark, use three tests.

1. Compare quotes. Get at least two or three quotes written against your own statement and compare the all-in markup.
2. Compare over time. Has your markup changed since you signed? Some contracts allow increases after an introductory period.
3. Compare with the service. Does the provider offer next-day settlement, good support, useful reporting or hardware replacement? Those have value.

How do you negotiate the markup?

You cannot negotiate interchange or scheme fees. You can negotiate every part of the markup. A few approaches work well.

• Show the number. Calculate your all-in markup and ask how it compares with what the provider offers new customers of your size.
• Bring a written quote. A quote from another provider on your own figures is a strong reason to ask for a better offer.
• Ask for the fixed fees to go. Statement fees, PCI fees and gateway fees are often easier to remove than the percentage.
• Use renewal. The end of the term is when your bargaining power is highest, because you can leave without an exit fee. See contract length, auto-renewal and notice periods.
• Offer volume or commitment. A longer term or higher guaranteed volume can reduce the markup, if you are confident of both.

Why does the markup matter to your whole comparison?

Because interchange and scheme fees are the same for every provider, the markup is the entire difference between providers on the same card mix. A merchant on a total of £280.00 who could pay £176.00 elsewhere is overpaying by £104.00. All of that lives in the markup and fixed fees.

For a payment consultant, the all-in markup is the most useful way to present a saving. It strips away the noise of rates and mixes and shows exactly what the merchant is paying the provider for its service. If the number is large, the conversation is easy. If it is already small, a switch may not be worth it, and saying so builds trust. The checkmyrates calculator shows the pass-through costs and the markup separately, so the merchant can see what a provider keeps.

Frequently asked questions

What is acquirer markup?

It is the part of your card fees that your provider keeps as its own margin, after paying interchange and scheme fees. It can be a percentage, a per-transaction fee, monthly fees or a mix.

How do I find my provider's markup?

On an interchange plus statement, add the markup lines and fixed fees. On other statements, subtract interchange and scheme fees from the total fees and divide the rest by turnover.

Can I negotiate the markup?

Yes. Interchange and scheme fees are fixed, but the markup is the provider's choice. A written competing quote, a renewal date and good volume all help.

What is a good markup?

There is no single figure. Compare the all-in markup between quotes on your own numbers, and weigh it against the service and contract terms.

Why does the markup look bigger on a flat-rate quote?

Because a flat rate has to cover the most expensive cards, the average payment is overpriced. The extra becomes the provider's margin when your actual cards cost less.

Does the markup include scheme fees?

It depends on the quote. In some interchange plus offers the scheme fees are bundled into the markup. Ask whether scheme fees are shown separately or included.

Figures in this guide are examples to show the method. Fees, rules and rates change, so check your own statement, contract and current rules before you decide. This is general information, not financial or legal advice.