PAYG Card Reader Compared to a Contract Merchant Service Account

What considerations need to be made when choosing a payment processor? Knowing your numbers can make a big difference when choosing between PAYG Card Reader Compared to a Full Contract Merchant Service Account.

It is far too common when looking at Social Media posts that when Business Owners are considering options for a Payment Processor, I am seeing questionable advice being given. Here is my attempt to help support businesses in making a more informed decision.

Disclosure –

Please do not take this information as advice or recommendations. As you will hopefully see there are a few moving parts that need to be considered and the maths and rates given in the example is for illustration purposes only.

To learn more please speak to a professional in this industry, or please reach out to Merchant Brokers for more tailored suggestions.

For the purposes of making some basic calculations we are going to make the following assumption on an average small business.

1 – Assumed Card Turnover Per Month £3500.00

2 – Assumed Average Transaction Amount £20.00

Maths comparison table of PAYG card readers verses Full Contract Merchant Accounts

Defining What is PAYG to Full Merchant Services

For the purpose of this article, I am lumping any Card Processor with no fixed contract for their services. E.g. Izettle, SumUp, PayPal etc.

When discussing a “Full Merchant Service” it is generally referring to the Major Acquirers in the UK – Worldpay, Elevon, Global Payments, First Data & Barclaycard. However, it also extends to the many ISO’s that are resellers of these company’s Acquiring along with Fixed Contracts for their terminals.


First and foremost, when looking for a Card Processor you need to consider what you want it to do. If the nature of a service is purely transactional then something like a traditional Card Machine is appropriate. However, as technology is progressing and changes in the economy are happening such as restrictions due to the Covid crisis. Payments is becoming a far more Tech led industry. What this can mean at this time, is that unlike comparing Card Machines purely from a financial stance, new and unique tech services are being developed with exclusive payment service providers. So, the cost of processing whilst may be higher is a calculated factor based on the value in the overall product supplied.

Restricted Services

Within Payment Services there are many business sectors that a Payment Provider is happy to do business with (subject to standard checks). However, there are many businesses that fall under a Restricted Classification. With PAYG services these industry types are generally listed on their websites, whereas a deeper conversation needs to happen when it comes to the main Acquirers. Unfortunately, the reality is that should a business model fall under such a banding they will be restricted with whom they can choose from, thus reducing their ability to negotiate on pricing. A common example of this seen at the moment are businesses selling CBD. There are several reasons behind this but in the whole, it comes down to the industry being unregulated at this time. For many ‘High Risk’ businesses out there, there most likely will be a Provider that will support. But this may mean speaking with a specialist in the field and may result in higher processing rates for them to take the business on.

Pricing Comparison

When looking at comparing pricing for Card Processing it is important to remember ‘Not All Pricing Is Created Equally’. It is important to understand the breakdown of charges between Fixed and Variable costs if you want to compare correctly. Looking at Headline rates can very quickly cost you more money that you expect.

You will note in the figures used in the table that £3500 has been used as the monthly card turnover. It is important to understand that from a purely mathematical point this is generally the tipping point between PAYG and a Contracted Service. This is not a hard and fast rule as it is affected by other factors but a good guideline for consideration.

For example, in the calculations given above no consideration for Business Cards or International Payments have been given. The cost of processing a Business Debit or Credit Card can typically be anywhere from 1.8% upwards as they have higher processing costs associated from Visa / Mastercard. With a PAYG service they will still typically process Business Cards at their flat card rate. However, as they also have higher processing costs to them, you will most likely see some form of ‘Fair Use Policy’ giving a limit on how many Business Card Transactions they may process on their accounts. Due to the high costs of processing Business Card many businesses discount this as an option. However, it is important to consider it at least as an option if the client is important enough.

  1. Many Corporate businesses give staff Credit Cards / Purchasing Cards. This gives their staff the ability to purchase goods & services up to a limit with ease. However, when asking for an account department to make a payment there can be delays in payment or terms added. So as a business it is simply a matter of considering if the 2% processing cost and loss to the profit margin is worth the potential increase in business?
  2. International Business. Different economies have different preferences on payment method. Some still have heavy preference to cash whilst many others are adopting Card Payments. International Payments via bank transfer can be costly, but there are also additional costs for cross boarder card payment. Comparing the costs of International Payments would be another article in itself. But as above the consideration needs to be the opportunity cost to the financial cost of doing business in this way.

Authorisation Fees

Authorisation fees or any additional pence per transaction added, is a very important factor of cost that needs to be considered, as it can make a big difference on costing and is affected by the average transaction amount, and thus industry relevant. For example, if you add 4p to the cost of processing a £2000 car then it makes little difference in overall costs. Whereas adding 4p to a £5 transaction for a purchase in a newsagent makes a big difference.

Here are the calculations –

Car Example – (£0.04 / £2000) x 100 = 0.002% as you can see not much impact on the overall percentage.

Newsagent Example – (£0.04 / £5) x 100 = 0.8% if this is then added to the example 0.4% processing cost, it then becomes an equivalent 1.2% processing cost.

PAYG Card Reader verses a standard  Card Machine


When choosing a new or swapping payment providers remember costs have a variety of factors that make up the overall pricing and its impact of differing business types. PAYG services as a general rule are a great option for start up business, low card turnover and seasonal businesses, but purely from a mathematical point of view there is a tipping point where a contract services becomes financially more viable.

As always, the best advice is to seek the consultation of a professional in this sector to help guide you through the differences in services to find the right support for you.

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