Card payments have soared in popularity among UK consumers in recent years. This is largely a result of technological developments, such as contactless and mobile payments, as well as changes in online buying habits with the rise of ecommerce.
The impact of Covid-19 may have permanently secured the shift towards card payments, although only time will tell. The number of payments made in cash, which was down to 23% before the pandemic, has continued to fall over the last year. While consumer spending was generally low throughout 2020, particularly in physical stores, there were also concerns about the risk of Covid-19 transmission when using cash. As a result, there has been a rise in the number of small businesses realising they need to offer their customers the option of contactless payments.
If you don’t already accept card payments, or if you’re not happy with your current set-up, there are several points to consider before choosing a new card provider. Here's everything you need to know about accepting card payments as a UK SME:
The basics of accepting card payments
There are three organisations involved in every card transaction, each of whom will take their own fee. Top of the tree is the scheme, such as Visa or Mastercard. Then comes the card issuer, which is the bank or other financial institution that issued the card, and the third is the acquirer, which is the middle-man that processes the authorisation, processing and settlement of the payment.
In order to process card payments, the merchant needs a service agreement with an acquirer (or card processing supplier) and a terminal that connects the merchant to the acquirer. There are many acquirers, ranging from your local high street bank or credit card issuer to specialists such as WorldPay.
It can take between one and five days for the payment to be credited to your bank account, depending on the type of transaction. Payments made in person are credited quicker than payments made over the internet. However, the acquirer will credit your merchant account for your transactions in accordance with the terms of your service agreement.
In the same way, personal credit scores have an impact on the interest you pay on financial products, high-risk merchants are likely to pay higher fees or have less favourable payment terms. High-risk merchants could be businesses that operate in areas such as travel or gambling or take all or most of their payments on a ‘customer not present’ basis (in telephone or over the phone), which are subject to higher incidences of fraud.
Card payment fees explained
There are several costs to take into account in the whole process: the merchant service charge (MSC), which is the fee for every transaction, payment gateway fees for payments taken online or over the phone, and authorisation fees.
There are two basic charging structures operated by the service provider. The first is the actual cost per transaction and tends to be offered only to larger companies. This is the most transparent way to pay for card payments, as businesses pay the actual cost per transaction, taking into account things like whether the customer is present (a lower fee) or paying over the internet (a higher fee).
The second option is a blended rate, where the provider will offer a fixed percentage per transaction, incorporating all potential fees and service charges. While it may make it easier to budget, the provider will always make assumptions in its favour to calculate your rate, so don’t automatically assume this is the preferable option.
When choosing a provider, it’s really important to shop around and compare not only the fees, but the complete service being offered. As well as ongoing transaction fees, you need to take into account the costs of the terminal hire, whether there’s a minimum monthly service charge if transactions fall below a certain amount, whether PCI compliance is included or charged as extra, and any other penalties or termination fees.
Most providers will offer a headline rate, such as a flat rate per transaction that may seem very attractive at first sight. But be sure to ask for an estimation of total fees based on your business type, turnover and payment history. A good provider will be able to guide you as to which type of fee is appropriate for your business in plain language, so if you aren’t convinced the rate they’re advertising is the one you’ll pay, shop around.
When choosing a card services provider, look at the services they offer as well as the rates they’re offering. Do they offer a payment terminal and upgrade it regularly? Do they support the terminal you already have? What settlement terms do they offer and how quickly will they pay you? This could vary between next day or three days, so be sure to push for the best deal.
Do they have dedicated account managers to deal with your queries as they happen, or do you have to log a ticket in an automated service and wait for a response? Are they available during evenings and weekends? If systems are down for even an hour, this could have a huge impact on sales.
And all merchants have to undertake a Payment Card Industry (PCI) security test each year – does your supplier offer support for compliance, and if so what fees are involved?
Start taking payments
Remember these key points:
- Look for value of money. Don’t assume all payment card processing deals are the same
- Choose a payment card processor that offers cost transparency
- Specialist providers often offer a higher level of customer service than high street banks
When you’ve done your homework with a service provider and chosen one which is right for you, the formalities should be complete within a few days. In less than a week, you could join the millions of SMEs in the UK who don’t need to say ‘no’ to over half of their customers.
About the Author
Nick Healy is CEO of payment card processing company Suresite. The company has been providing low-cost card payment solutions to independent and group retailers, as well as multinational organisations, for over a decade.