Merchant services: what your business needs to know

Key takeaways

• Merchant services are the tools, accounts, and systems that let your business accept electronic payments, from card terminals to online checkouts and everything in between.

• Understanding fee structures (flat-rate vs. interchange-plus) and choosing the right provider for your business type can save you significant money over time.

• Airwallex offers a full suite of merchant services with multi-currency support, interbank FX rates, and card processing from 1.30% + £0.20, helping UK businesses accept payments globally and keep more of what they earn.

In 2023, 61% of all UK payments were made using a debit or credit card.¹ Cash usage has fallen to record lows,² and you're now more likely to see a "card only" sign in a shop than "cash only."

For small businesses, not being able to accept card payments is a serious barrier to growth. The good news is that getting set up is easier than ever. Merchant services providers handle the complex setup, so you can start taking payments quickly.

In this article, we'll cover what merchant services include, how the payment process works, what you'll pay in fees, how to choose the right provider, and a comparison of popular options in the UK market.

What are merchant services?

A merchant is anybody who sells goods or services for profit. Merchant services are the software, hardware, and systems businesses use to make sales. It's a broad category of financial services that lets you safely and securely process customers' electronic payments.

You'll often hear terms like "merchant services," "payment processing," and "payment gateway" used as if they mean the same thing, but they don't quite. Merchant services is the umbrella term that covers everything you need to accept payments. Payment processing is the part that executes transactions. A payment gateway is the interface that captures and encrypts card details before sending them to the processor. Think of merchant services as the full toolkit, with payment processing and gateways as individual tools inside it.

Building a payment system from scratch is technically complex and heavily regulated, so almost every business uses a specialist provider.

PSP vs. dedicated merchant account

When you start looking at providers, you'll usually come across two main models: Payment Service Providers (PSPs) and dedicated merchant accounts.

A PSP is like renting a desk in a shared office. Your transactions are pooled under the provider's master merchant account, which means faster setup and simpler onboarding. You can often start accepting payments within a day or two. A dedicated merchant account is more like leasing your own office space. It's set up just for your business, which gives you more control over your funds and can mean better rates as your volume grows.

Here's how they compare:

• Setup speed: PSPs are faster (often same-day); dedicated accounts take longer due to underwriting.

• Control: Dedicated accounts give you more control over settlement timing and fund access.

• Pricing at volume: Dedicated accounts often become cheaper once you're processing significant volumes.

Most modern providers, including Airwallex, Stripe, and Square, operate as PSPs. That's a big reason getting started has become so simple.

How merchant payment processing works

Taking a card payment looks simple. Your customer taps their card and you get paid. But behind that tap, there's a lot going on. Here's what happens in the few seconds between tap and approval:

• Presenting the card: The customer enters their details at checkout or physically uses their card in-person.

• Card authorisation: They enter their PIN, unlock their digital wallet, or approve the transaction in their mobile banking app.

• Payment gateway: Your checkout, POS, or terminal encrypts their card and transaction data and sends it to your acquiring bank.

• Card network: Your acquiring bank contacts the relevant card network (Visa, Mastercard, etc.), sharing the transaction request.

• Issuing bank checks: The cardholder's bank checks there's enough money available. It either declines the transaction or authorises it and ringfences the funds.

• Authorisation communication: The issuing bank sends its decision back through the card network to your payment processor, which tells your terminal or checkout.

• Clearing and settlement: At a predetermined time, often midnight, the money moves from the issuing bank to the acquiring bank. The transaction is considered settled when the money lands in your business account, not your acquiring or merchant account.

That's the process behind every card tap. But to make it all work, you need several connected parts.

Key components of a merchant services solution

Merchant services is such a broad term that it can mean a lot of different things. You might need some specific features, but there are a few common parts you'll see with every provider.

Ideally, you'll find one provider that covers everything you need. You can combine different providers, but if you want ease of use and simplicity, a one-stop shop is best.

It's also common to find providers that offer certain features through third parties. Everything sits under one account, but some parts of the service on the back end are, technically, provided by another company.

Payment methods your customers expect

Modern merchant services go well beyond card payments. Customers increasingly expect to pay in the way that suits them best, whether that's tapping their phone or spreading the cost over instalments. Here are the main payment methods to think about:

• Digital wallets: Apple Pay, Google Pay, and similar services account for a growing share of online and in-store transactions. Offering them can improve checkout conversion.

• Buy now, pay later (BNPL): Options like Klarna let customers split payments into instalments, which can increase average order values.

• Bank transfers and open banking: Direct account-to-account payments, often with lower fees than card transactions.

• Payment links: Shareable links you can add to invoices, emails, or messages, useful for service businesses and B2B transactions.

Airwallex supports 130+ currencies and 160+ payment methods, so you can meet customers wherever they are and however they want to pay.

Once you know what parts you need, the next question is what they'll cost.

Merchant services fees and pricing models

Merchant services pricing can feel murky because providers structure their fees in different ways. You'll see different approaches from vendors that otherwise look fairly similar, and you'll also come across pricing structures that work well for some businesses but terribly for others.

It's not easy to parse, but here are the main fees and pricing models to watch for:

Transaction fees

A charge for processing each transaction. For example, a debit card payment processed by Airwallex costs 1.30% + £0.20.

You'll usually see these fees set as a percentage of each transaction, a fixed fee, or a combination of both. These models are called blended pricing or Interchange++ pricing. This article on interchange pricing models explains them in more detail.

Flat-rate vs. interchange-plus vs. tiered pricing

Understanding the three main pricing models can help you choose the right one for your business:

• Flat-rate: You pay the same percentage on every transaction, no matter what card type is used. It's simple and predictable, which makes it good for lower-volume businesses that value simplicity over optimisation.

• Interchange-plus: You pay the actual interchange fee (set by the card networks) plus a fixed markup from your processor. It's more transparent and usually cheaper at higher volumes, because you're not overpaying on low-cost transactions.

• Tiered: Transactions are grouped into qualified, mid-qualified, and non-qualified tiers, each with different rates. This is often the least transparent model, because it's not always clear which tier a transaction will fall into.

Here's a quick example. On a £50 domestic Visa debit transaction:

• Flat-rate (1.75%): You'd pay £0.88

• Interchange-plus (0.20% interchange + 0.30% markup): You'd pay £0.25

The right model depends on your transaction volume and mix. If you're processing higher volumes or lots of debit card transactions, interchange-plus often works out cheaper.

Monthly and annual service fees

Most providers charge a monthly fee for using their services, just like your accounting, HR, or CRM software.

Some providers don't charge product fees this way, and others use conditional pricing. For example, your Airwallex explore plan costs £0 instead of £19 if you transact or hold over £10,000 each month.

Setup and hardware costs

Getting your merchant services setup in place can come with one-off costs, from establishing API access to buying POS terminals and card readers.

These are usually one-off costs. When you're comparing providers, include them in your total first-year spend so you get a true picture of what you'll pay.

Chargeback and PCI compliance fees

Security and protection isn't always cheap. Your processor has to pay fees to PCI for their support and assistance in keeping customer data safe, and those costs get passed on to merchants.

When it comes to fraudulent transactions, your payment processor will do everything they can to prevent them, but that isn't always possible. In the, hopefully rare, event that you face a chargeback (returning funds to a customer after they complain to their card issuer), you'll pay a chargeback fee to cover the time and expense of handling it. Typical chargeback fees in the UK range from £15 to £75 per incident.

You can reduce chargebacks by:

• Using clear billing descriptors so customers recognise the charge on their statement

• Providing responsive customer service to resolve issues before they escalate

• Using fraud prevention tools like 3D Secure and address verification

FX fees for international transactions

If an EU customer buys from your UK store, they'll pay in EUR, even if your shop shows prices in GBP. That conversion comes with cross-border fees, and your bank will usually charge a markup on the exchange rate.

The way around that is to use a merchant services provider that can handle multi-currency payments at market-leading FX rates. Airwallex can process payments in 130+ currencies and via 160+ payment methods, using interbank exchange rates, protecting your margins as much as possible.

What you'll pay in practice depends on which services your business needs.

Which merchant services does your business need?

The merchant services you need depend on the type of business you run. The most basic setup includes payment processing (gateway and merchant account), while others can include extras like account and card issuing.

The table below shows which services different business types typically need. Of course, each individual business will have its own requirements.

Once you've worked out what you need, you can start evaluating providers.

How to choose a merchant services provider

Before you compare options, you need to know what you're looking for. Once you can answer a few key questions, you can filter providers based on your requirements and how well they can meet them.

Questions to ask yourself:

• What's my budget for setup and monthly running costs?

• What specific requirements does my business model and industry need?

• What currencies and countries do I need to be able to transact in?

• What other software does it need to integrate with?

Questions to ask providers:

• What are the setup and ongoing costs?

• Do you understand the specifics of my business and industry?

• Do you offer multi-currency accounts and international payment rails?

• Do you integrate with my accounting, data, and other software?

How to get started

Once you've chosen a provider, here's how to get up and running:

• Assess your needs: Decide whether you need online payments, in-person payments, or both.

• Compare providers: Shortlist two to three options based on pricing, features, and integrations.

• Apply and complete onboarding: Submit your application and complete any Know Your Customer (KYC) requirements.

• Integrate or set up hardware: Connect the provider to your website or install your POS terminals.

• Test before going live: Run test transactions to make sure everything works before accepting real payments.

Once your requirements are clear and you've got a process in mind, you're ready to compare specific providers.

Merchant services providers for UK small businesses in 2026

You're not short on options. Merchant services are so important for commerce that the market is highly competitive. That's great for choice, but it can also make providers harder to compare.

To make your search more manageable, here's a cross-section of some popular options in the market. There should be something here for most use cases, but it's always worth doing your own research.

Airwallex

The global financial platform for growing businesses. Airwallex offers a full suite of merchant services, along with valuable features like low-cost FX, spend management, and accounts payable tools. It's everything you need to do business with the world.

• Full payment processing with multi-currency support

• Interbank FX rates protecting your margins on international transactions

• Plugins and direct integrations with Shopify, Magento, WooCommerce, and more

• Spend management and accounts payable tools included at no extra cost

Square

Reportedly the market leader for POS systems,³ Square has a strong reputation with UK retailers.

• Wide range of hardware and software for in-person sales

• Gift card and loyalty programme features

• Integrated inventory management

Stripe

Stripe is the world's largest fintech, with its total payment volume increasing by 38% year-on-year in 2024.⁴

• Extensive product range with a focus on data and analytics

• Developer-friendly APIs for custom integrations

• Strong reporting and financial insights tools

Shopify Payments

It might seem strange to include a platform-specific provider on this list, but not when one in 10 eCommerce stores worldwide runs on Shopify.⁵

• Integration with Shopify store data

• No third-party gateway fees for Shopify merchants

• Built-in fraud analysis and chargeback management

Worldpay

An omnichannel provider, Worldpay is also worth a look because of its policy of serving a wide range of businesses.

• Accepts merchants in industries often excluded by other providers (e.g. gaming and other high-risk sectors)

• Dedicated webpages and support for high-risk industries

• Global reach with local acquiring in multiple markets

SumUp

SumUp focuses on smaller businesses with a physical footprint, while also offering enterprise packages for higher-volume merchants.

• Simple, affordable card readers for in-person payments

• Gift card and loyalty programme features

• Straightforward pricing with no monthly fees on basic plans

How Airwallex supports UK businesses with merchant services

Your choice of merchant services matters a lot. Electronic payments are "the preferred method of spending for UK consumers," according to UK Finance.⁶ Very few businesses could survive without them.

So, if it's a non-negotiable part of modern business, you want to make the best choice. Products can look similar across providers, but customer service, product ecosystems, and pricing are where providers start to separate themselves.

Most merchant services providers look similar on paper. The real differences are in their wider product range and what they charge. Airwallex stands out in both of those areas. Across our merchant services, you'll get:

• Hold and manage funds in multiple currencies: Multi-currency Business Accounts let you receive, hold, and pay out in the currencies you actually use.

• Accept payments online: Our payment gateway supports 160+ payment methods (POS and terminals coming this year).

• Pay suppliers and partners globally: Global payouts and transfers to 150+ countries.

• Process transactions at competitive rates: Payment processing from 1.30% + £0.20 for UK debit cards.

• Issue cards for your team or customers: Card issuing for spend management or embedded finance use cases.

With card processing rates as low as 1.30% + £0.20 and FX rates from just 0.5% above the interbank exchange rate, processing payments with Airwallex helps you keep more of the money you earn.

On top of that, you can access our spend management tools at no extra cost.

The right provider helps you earn money in more places and keep more of what you make. That's what we're building at Airwallex, and we'd love to have you on board.

Frequently asked questions

What does a merchant service do?

A merchant service processes electronic payments between your customers and your business. That includes authorising the transaction, moving funds between banks, and depositing them in your account. It also covers security and compliance to keep payment data safe.

What's the difference between a payment gateway and a payment processor?

A payment gateway captures and encrypts your customer's card details, while a payment processor handles the actual movement of funds between banks. They work together. The gateway is the front door, and the processor is the engine. Most providers bundle both into a single service.

How much do merchant services cost?

Most providers charge a per-transaction fee, usually between 1.3% and 3.5% plus a fixed fee per transaction. Some also charge monthly service fees. Costs vary depending on your pricing model (flat-rate vs. interchange-plus) and your transaction volume. Higher volumes often mean better rates.

What's the difference between a PSP and a merchant account?

A PSP (Payment Service Provider) pools your transactions under its own master merchant account, while a dedicated merchant account is set up specifically for your business. PSPs are faster to set up and simpler to manage; dedicated accounts give you more control and can be cheaper at higher volumes.

Sources and references

• https://www.ukfinance.org.uk/system/files/2024-07/Summary%20UK%20Payment%20Markets%202024.pdf

• https://www.reuters.com/markets/europe/uk-cash-usage-falls-record-low-share-transactions-2023-2024-07-23/

• https://6sense.com/tech/pos-systems/square-market-share

• https://stripe.com/newsroom/news/stripe-2024-update

• https://www.statista.com/topics/10315/shopify/

• https://www.ukfinance.org.uk/news-and-insight/press-release/ps1-trillion-worth-uk-card-transactions-in-2024