What are merchant services? Everything small businesses need to know

10 or 20 years ago, a business could have easily traded without taking card payments. Many wouldn’t even think twice, pulling out their wallet and grabbing some notes to settle up.

In 2023, 61% of all payments were made using a debit or credit card. You’re more likely to walk into a shop or cafe with a ‘card only’ sign than ‘cash only’. The rise of cards (and contactless and digital wallets), and the fall of cash, has been well-documented.

Today, not being able to take card payments is a major hindrance to growth. Thankfully, it’s easier than ever to get started – merchant services providers can get you set up quickly and taking card payments before you can even say “change for a tenner”.

In this article, we look at what makes up merchant services, what you can expect in terms of costs and services, and review several popular options to get your research started.

What are merchant services?

A merchant is anybody who sells goods or services for profit. Merchant services are the software, hardware, and infrastructure that businesses use to make sales.

It’s a broad category of financial services that enable businesses to safely and securely process customers’ electronic payments.

Merchant services exist because building a payment system is so technically and regulatorily complex, 99.99% of businesses could never develop on their own.

How the merchant services process works

Taking a card payment looks simple – they present their card and you get paid – but the infrastructure required is extensive. Let’s run through the average process for accepting a card payment.

1. Presenting the card: Either by entering their details at checkout or physically using their card in-person.

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

3. Payment gateway: The payment gateway (your checkout, POS, or terminal) encrypts their card and transaction data and sends it to your acquiring bank.

4. Card network: Your acquiring bank contacts the relevant card network, sharing the transaction request.

5. Issuing bank checks: The cardholder’s bank checks there is enough money available to make the payment. It either declines the transaction or authorises it and ringfences the money.

6. Authorisation communication: The issuing bank makes its decision and tells the card network, which then passes it on to your payment processor.

7. Clearing and settlement: At a predetermined time (e.g. midnight), the money moves from the issuing bank to the acquiring bank. The transaction is considered settled when the money is deposited in your bank account, not your acquiring/merchant account.

Key components of a merchant services solution

Being such a broad concept, merchant services can mean a lot of different things. You might need specific features, but you should find a few common features with every provider.

Ideally, one provider will be able to deliver all of the merchant services you need. It’s possible to combine different providers, but for ease of use and simplicity, a one-stop-shop is best.

It’s common to find providers who offer certain features through third parties. Everything is organised in one account, but some parts of the service on the back-end are, technically, provided by another company.

Common fees and pricing models to expect

The complex and varied nature of merchant services means pricing can be a little murky. You’ll find different approaches between otherwise fairly similar vendors, as well as pricing structures that work well for some businesses but terribly for others.

It’s not an easy thing to parse, but you should look out for the following pricing models and expected fees:

Transaction fees

A charge for processing each transaction, e.g. a debit card payment processed by Airwallex costs 1.30% + 0.20 GBP. These fees are 

You’ll usually find these fees structured 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.

Monthly/annual service fees

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

Some providers don’t charge any product fees in 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 or hardware costs

Getting your unique merchant services set up can come with one-off costs, from establishing API access to purchasing POS terminals and card readers.

There’s not a lot you can do about these costs – it’s just the price of getting your business ready to earn and retain more money.

Chargeback or 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, which gets passed on to merchants.

In terms of fraudulent transactions, your payment processor will do everything they can to prevent this activity, but it’s not 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 be charged a fee to cover for the time and expense of handling it.

FX fees for non-GBP transactions

An EU customer who buys from your UK store will pay in EUR, even if your shop shows prices in GBP. There’s no magic involved, nor an act of grace from your bank. There’s a cost to exchanging these funds and your bank will charge a markup on the exchange rate.

The way around this 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.

Merchant services for different types of UK businesses

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

The table below explains a few business types and the types of merchant services they’re likely to need. Of course, each individual business will have its own requirements – this isn’t a prescriptive list.

Top merchant service providers for UK small businesses in 2025

You’re not short on options. With merchant services being so important for commerce, it’s a competitive market. Depending on your stance, variety can feel optimal or overwhelming.

To try and make your search feel manageable, we’ve put together a cross-section of some of the best options in the market. There’s an option for most use cases, but it’s always worth doing your own desk research.

Airwallex

The global financial platform for growing businesses. Airwallex offers a full suite of merchant services, coupled with highly valuable features like low-cost FX, spend management, and accounts payable tools. It’s everything you need to do business with the world. Airwallex also supports plugins and direct integration with popular eCommerce platforms like Shopify, Magento, and Woo.

Ideal use case: Any business, especially those with international customers or suppliers.

Square

Reportedly the market leader for POS systems, Square has a strong reputation with UK retailers. They have a wide range of hardware and software to help you make sales, even as far as generating gift and loyalty cards.

Ideal use case: Physical retailers who want to optimise customer experience.

Stripe

Stripe is the world’s largest fintech with its total payment volume increasing by 38% YoY in 2024. Their product range is extensive, with a focus on data and analytics.

Ideal use case: An eCommerce business that enjoys digging into data and optimising its finances.

Shopify Payments

It might seem strange to include a platform-specific provider on this list, but not when one in ten eCommerce stores worldwide runs on Shopify. The platform’s integrated merchant services work, as you might expect, seamlessly with your shop data in powerful ways.

Ideal use case: An eCommerce or subscription business running on Shopify.

Worldpay

An omnichannel provider, Worldpay also merits attention for its policy of serving a wide range of businesses. Many providers will opt out of working with, for example, gaming or crypto companies. Worldpay takes a more libertarian view of things and has dedicated webpages for these industries.

Ideal use case: Merchants in industries that are usually excluded by other providers.

SumUp

With enterprise packages available for customers who have over £60,000 in payment volume, SumUp has a focus on smaller businesses with a physical footprint. That’s not to say their product is simplistic – there are lots of great features, from gift cards to cash advances.

Ideal use case: Single-venue, in-person businesses on the smaller side.

Key questions to ask when choosing a provider

Before you can start comparing options, you need to know what it is you’re looking for. Once you can answer these questions, you can start to filter providers according to your requirements and their ability to meet them.

• How quickly do I need to get my merchant services up and running?

• 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?

Once you’ve answered those questions, you can go out into the market and turn these questions around on providers, asking:

• Can you get this live in the required timeframe?

• What are the setup and ongoing costs?

• Do you understand the specifics of my business?

• Do you offer multicurrency accounts and international payment rails?

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

How Airwallex supports UK businesses with merchant services

Merchant services providers are much alike, on the surface. What sets them apart is their wider product ecosystem and costs. Airwallex stands out in both of those categories. Across our merchant services, you’ll get:

• Merchant account and multi-currency business account

• Payment gateway (POS and terminals coming this year)

• Global payouts and transfers

• Payment processing

• Card issuing

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

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

Wondering what a payments engine for global commerce includes? Get all the details about payments with Airwallex.

Look below the surface to find maximum value

Your choice of merchant services matters – a lot. This is the engine that drives your ability to take electronic payments, which are “the preferred method of spending for UK consumers”, according to UK Finance. There are very few businesses that could survive without merchant services.

So, if it’s a non-negotiable element of modern business, you want to make the best choice. While the products are similar across providers, the standard of customer service, product ecosystems, and pricing are where providers diverge.

The right provider will empower your business to earn money in more places and keep more of the money you make. That’s what we’re building at Airwallex and we’d love to have you on board.