Card machine contract early termination fees are where switching provider usually gets expensive, and the Payment Systems Regulator found that the bill often sits in the terminal agreement rather than in the processing one. Among three features that hold merchants back, its final report names “POS terminals and POS terminal contracts that prevent or discourage merchants from searching and switching provider of card-acquiring services”.
That finding became a binding rule in October 2022.
Providers named in a PSR direction must now keep the first term of a terminal hire within eighteen months for shops with card turnover up to ten million pounds a year. The cap does not make leaving free. It also does not reach every machine on every counter.
We read the market review, the remedies decision, the direction itself and the payment law behind the processing contract. The lesson for an owner or a bookkeeper is short: a card machine often comes with two contracts, and a merchant should never compare a new rate before pricing the exit from both.
What are card machine contract early termination fees?
An early termination fee is the charge a provider asks for when a merchant ends an agreement before its minimum term runs out. In card acceptance it can sit in two places.
The first of them is the card-acquiring contract. Card acquiring is the service that lets a shop accept a card payment and receive the money, and the acquirer is the firm that provides it.
The second place is the POS terminal contract for the machine. POS means point of sale. The PSR explains that terminal hire is either written into the acquiring contract or set out in a separate contract, and the hire may carry its own initial term.
Often the terminal comes from a third party.
Under the PSR's direction, a hire signed with an independent sales organisation, or ISO, counts the same as one signed with the acquirer. An ISO sells acquiring services on behalf of acquirers. Leasing companies are covered too.
The wording of the hire sets the fee. The PSR says that in the contracts it reviewed “these early termination fees include, in some cases, the total value of outstanding payments due up to the end of the initial term, plus administrative fees.”
Here is a hypothetical example built only on that finding. A shop on a three-year terminal hire that leaves after one year could owe the two remaining years of rental plus an administration charge.
Why can leaving the terminal cost more than leaving the card processing?
The two contracts often run on different clocks, and the terminal clock is usually the longer one. Acquirer contracts mostly start with terms up to twelve months. In the PSR's sample, some terminal contracts ran three to five years.
That gap produces an odd result for a merchant. The final report warns that “a merchant could incur a significant early termination fee when cancelling its existing POS terminal contract, even if no such fee would apply when cancelling its card-acquiring services contract.”
A new acquirer usually means a new machine as well.
The report gives the technical cause: “POS terminals are configured to ensure compatibility with the acquirer’s POS terminal software”. Even a terminal a merchant sources on its own must be set up for its acquirer, the PSR adds, so a switch can still require new hardware.
So the chain runs one way: a better processing rate elsewhere needs a new terminal, the new terminal makes the old hire useless, and cancelling the old hire triggers the fee written into it.
Trade bodies described the same lock to the regulator. The Association of Convenience Stores said switching acquirer-supplied terminals can drag on, and the PSR's final report sums up its submission: “Contracts for these terminals typically run for five-year terms and auto renew.”
Timing changes the size of the bill as well. The PSR noted that in some contracts the termination fees fall as the end of the initial or renewal term gets closer.
An exit in year one costs the most.
What does the PSR's 18-month limit actually cover?
The limit covers terminal contracts linked to the largest acquirers, for merchants below the ten million pound turnover line. It sits in Specific Direction 16, a legal instruction the PSR gave to named card-acquiring providers alongside its remedies decision.
A PSR factsheet for terminal providers explains the motive. The regulator's review “identified that POS terminal contracts can lock merchants in for as long as 48 months”, and long lock-ins discourage merchants from shopping around.
The scope is wide, because the direction applies to any arrangement, whatever it is called, that includes at least one terminal and a schedule of at least two payments.
New contracts face the strictest version of the rule. Any initial minimum term must be no longer than eighteen months, and after that the contract must move to a monthly term with one month's notice on the merchant's side.
Exit charges in new contracts get their own test. The direction requires that “if there are any exit or termination fees these are cost based, transparent, and have been fully explained to merchants before they enter into the contract”.
That test does not ban a fee inside the first eighteen months, and the PSR says so in plain words. Its factsheet notes that the direction “requires exit fees for new POS terminal contracts to be cost-based, transparent and fully explained, but doesn’t limit them to applying only after the 18-month period.”
Older contracts get a softer version of the rule.
The remedies decision lets a contract signed before the direction finish its original minimum term, even one longer than eighteen months. Only after that must it roll monthly.
Some equipment falls outside the direction altogether, the factsheet says. It counts card terminals, smart POS devices and EPOS tills with a built-in card device as covered. Card readers that rely on a phone, soft POS apps and virtual terminals are excluded.
Merchant contract cancellation, UK: is it free after six months?
For a smaller business's acquiring contract, usually yes. The PSR points out that the Payment Services Regulations 2017 give merchants a statutory right to end their card-acquiring contract, through regulation 51.
That regulation lets the user end the contract at any time unless a notice period of up to one month was agreed. Any exit charge must reasonably match the provider's actual costs.
A separate paragraph of regulation 51 sets the six-month line. The text reads: “The payment service provider may not charge the payment service user for the termination of a framework contract after the expiry of 6 months of the contract.”
Bigger businesses can lose this protection by signing it away.
Under regulation 40, if the user is not a consumer, a micro-enterprise or a charity, “the parties to a contract for payment services may agree that any or all of the provisions of this Part do not apply.” The PSR calls this the corporate opt-out.
The Ombudsman service sets the micro-enterprise size test. It is a business that employs fewer than ten people and has an annual turnover or balance sheet that does not exceed two million euros.
A proposed change opens a second exit for covered merchants. When an acquirer proposes changes, the PSR explains, a merchant can end the contract without fees by giving notice before the change takes effect. The provider must tell the merchant about that right.
The PSR's own warning shows the limit of this protection: a terminal contract can carry a significant fee even when leaving the acquiring contract costs the merchant nothing.
Does consumer credit law protect a small shop's terminal hire?
For some of the smallest merchants, the hire of a terminal is regulated by the Consumer Credit Act 1974, as the PSR's final report notes. The Act then gives the hirer a right, subject to conditions, to end the hire without charge after eighteen months.
That minimum period sits in section 101 of the Act. Its wording is direct: “A notice under subsection (1) shall not expire earlier than eighteen months after the making of the agreement”. For equal monthly payments, the minimum notice is one interval or three months, whichever is less.
Section 101 also has exclusions for many business hirers. It does not apply where hire payments exceed fifteen hundred pounds in any year, or where business goods were chosen by the hirer and bought by the owner at the hirer's request from someone other than the owner's associate.
Barclaycard's published card reader hire agreement shows the pattern. It sets a minimum term of eighteen months from delivery of the first terminal, and a merchant can leave earlier with one month's notice and a cancellation fee listed under Key Financial Information.
The same template is plain that all payments and any amounts owed remain due until the agreement actually ends.
How can a shop check its own exit cost before giving notice?
The answer sits in the signed documents on file. A terminal hire, a lease, a membership agreement and even a structured sale can each count as a terminal contract under the PSR's factsheet, so every one of them belongs in the pile.
For each document, the useful facts are the start date, the length of the minimum term, the renewal rule, the notice period and the named fee.
An auto-renewing fixed term needs its own diary entry, because the PSR found that such contracts let the merchant leave only at the end of each renewal term.
The turnover line in the direction comes next. Below that line, a merchant can check the regulator's list of directed firms, and if its acquirer is there, a contract signed since the direction took effect is meant to roll monthly after any first term.
Exit fees in new contracts must be explained. The direction requires exit fees to be cost based and fully explained before signing, so a merchant can ask the provider to show its working.
Directed providers must send a reminder before the term ends. Under the PSR's trigger message remedy, a contract with a minimum term must carry the message on the invoice sent closest to thirty calendar days before that term expires.
An offer from a new provider can reduce the cost, but the fee in the old contract still exists. Several acquirers said they do not always enforce such fees. Some ISOs offer to pay part or all of them.
The regulator still counted the clause as a barrier. Its report says that “the existence of contractual provisions stating that such fees are payable if the merchant terminates early, will affect merchants’ willingness to search and switch.”
Barclaycard publishes the terms of one such offer for new customers. Its exit fee reimbursement programme is open to businesses with card turnover below six and a half million pounds. It pays up to three thousand pounds per business.
The programme asks for evidence before it pays, such as a copy of the old supplier's terms or a letter showing the full exit costs, sent within ninety days of joining.
Its terms leave the cancellation itself to the merchant, since Barclaycard says it cannot contact the current provider to cancel existing agreements and may withdraw or amend the offer at any time.
Complaints about a fee go to the provider first. Most small businesses can then take an unresolved complaint to the Ombudsman service.
What do the regulator's findings leave open?
The record shows how fees are built, not their size. The PSR's report blanks out the range of terminal contract terms it reviewed, and the documents we read give no typical exit fee in pounds.
The evidence base was also narrow by design, because the review sampled the contracts of the five largest acquirers and the terminal contracts of five ISOs.
The survey evidence on contracts is thin and contested. One large acquirer pointed out that only 10% of surveyed merchants who considered switching but stayed blamed being tied into a contract. The PSR answered that those answers were unprompted, and that some merchants may not have known an exit charge was waiting.
Leasing and financing firms were asked for data later, in a March 2022 request for the remedies work.
Card readers bought outright sit outside most of this picture. The final report notes that merchants contracting with payment facilitators typically buy a reader up front instead of signing a terminal contract, and the factsheet leaves such readers outside the eighteen-month limit.
We found no published measure of the remedy's results. In October 2024 the PSR said it was looking at whether businesses had problems hiring or ending the hire of terminals under the new limit. That feedback was meant to inform a progress report.
A short note on your own case: the real figure depends on the agreement on file, so an accountant, a solicitor or the provider itself can confirm it before any notice goes out.
What comes next for card machine contract early termination fees?
The PSR itself is due to be folded into the FCA. The PSR's annual report for 2025 to 2026 says the Financial Services and Markets Bill “contains provisions to abolish the PSR and transfer our functions to the FCA, preserving their substance and scope”.
Our view at the school is that the eighteen-month limit shortened the trap without removing the price of an early exit.
A shop that knows the end date of its minimum term, and keeps the processing contract and the terminal hire in the same folder, can switch on its own timetable. Read the old hire agreement before the new quote.
Task for this lesson: take the terminal agreement and the acquiring agreement and write five facts on one card. Note the start date, the minimum term, the notice period, the named cancellation fee and the date eighteen months after signing, then check the acquirer's name against the PSR's list of directed firms.