These systems are often costly, challenging
to implement and sometimes technically difficult to understand. These hurdles
represent a ‘barrier to entry’, which, if overcome, can give a merchant the
competitive edge.
Electronic business is real and continues
to grow as a medium with over 35% of UK
There are several approaches to taking
Electronic payments. These are:
•Traditional Card
Payments•Mail-order
•Online Payments
•Acquiring Banks
•Payment bureaus
•Secure order forms
•BACs
•Alternative payment options
•No payment option
Let’s look at each of these:
Accepting
credit card payments
Many businesses can take offline Electronic
payments through their credit and debit card facilities. All banks can process
these transactions and some will also process Internet based transactions.
To take offline Electronic payments you
usually need to apply for the appropriate facility from your bank or other
payment processor or provider.
Here are some key electronic payment terms
to consider:
•Merchant service: this is the generic term
for the service provided by banks that allow you to ‘swipe’ credit and debit
cards at your place of business.
•PDQ machine: this generic term for the
machine that is used to ‘swipe’ a credit or debit card.
•Acquiring bank: once you have ‘swiped’ the
card, the customer’s details are passed to an acquiring bank for processing.
The acquiring bank checks the details of the card and authorizes the
transaction. The acquiring bank is the bank that provides your merchant
service.
Ten steps to setting up offline electronic
payment:
1.Apply to a bank for a merchant service.
2.Negotiate the costs.3.On acceptance, pay the set-up costs.
4.Receive and install a PDQ machine.
5.‘Swipe’ the customer’s card to collect their credit or debit card details.
6.Wait while the card details are passed to the acquiring bank for approval.
7.Ask the customer to sign the sales voucher.
8.Verify the signature and process the payment.
9.A transaction charge is automatically paid to the bank.
10.The customer leaves with the goods or service.
For electronic payment in a shop, the
customer is present to sign the sales voucher. If the transaction takes place
via the phone or the Internet, the customer is not present so there is an
increased fraud risk.
Any merchant service (whether offline or
online) is provided at the discretion of the financial institution concerned.
There are few set rules as to which businesses can and cannot be approved for a
merchant service. Be prepared to negotiate the product at a price that suits
your needs. There is information in the Costs and Considerations section to
help you with this.
Payments
by phone, post or fax
Mail order payments involve more risks for
banks and financial institutions than transactions where the customer is
present at the point of sale. Consequently, acquiring banks usually ask
for more commission per transaction (perhaps 3.1% instead of 2.79%) and a more
detailed agreement on the fraud checks you use.
With proper planning, your mail order operation
should be able to get a customer not present merchant service from your bank
without difficulty. If you already have an offline service negotiate with your
bank to avoid paying another set up charge.
The bank will approve each application
individually but there are other equally valid options available if you cannot
get a merchant service.
Taking
online payments
All the electronic payment methods we have
examined use an Acquiring Bank and Merchant Service to process the
transactions. To take online Electronic payments you need to get a specific
Internet Merchant Service and also a Payment Service Provider to collect the
card details over the Internet. Let’s review these elements.
An acquiring bank: is a high street bank
that offers credit and debit card processing services. They acquire the money
from the customer, process the transaction and credit your account. You need to
apply for a merchant service if you want a bank to handle your Electronic
payments (other options are explored later).
Merchant Services fall into three
categories:
1.Standard Merchant Service for use in
shops when the customer is present;
2.Mail-order Merchant Service for customer
not present transactions when the customer orders remotely by phone or post /
fax;3.Internet Merchant Service for transactions generated over the World Wide Web.
Obtaining an Internet Merchant Service from
an Acquiring Bank is quicker and easier if you already have “offline” card
processing facilities set up with the bank. In this case, just ask your bank
for an additional Internet Merchant Service ID for use exclusively with
Internet transactions. This process is normally quick, especially if the risk
to your business does not change.
If you have no prior card processing the
bank will carry out a thorough credit check (lasting anything up to 8 weeks).
The delay can make it worthwhile using a Payment Bureau that can be upgraded
when the Acquiring Bank application is ready – or when you feel your Internet
turnover justifies the slightly higher fixed costs of an Acquiring Bank.
Alternatively you could look at Post Paid Account services, some of which
remove the need for an Internet Merchant Service ID.
When you obtain multiple merchant numbers
for both online and offline, you may need to pay separate set up fees and rent
a PDQ swipe machine for customer present transactions. The acquiring bank could
charge around £25 per month for this rental. If you are getting a combination
of these services negotiate the costs with your provider as they may only
charge one set-up fee.
A Payment Service Provider (PSP): is a
“virtual” PDQ swipe card machine that collects the card details over the
Internet and passes them to the acquiring bank. To take Electronic payments
over the web, you will need a PSP at a small cost. Some acquiring banks offer
PSPservices as part of their product and there are other less expensive options
available.
Your choice of PSP will depend on its cost
and compatibility with your chosen e-commerce software solution. A fixed
monthly fee starts around £10, but there are some cheaper option available
starting as low as £0.05 per transaction. Usually, the higher your transaction
volume the cheaper the rate you will be charged.
Acquiring
Banks
As previously mentioned, the Acquiring
banks are an essential element of taking Electronic payments. If you wish to
take card payments directly you will need to apply for a Merchant Service with
an Acquiring Bank.
The Electronic payments tool does not
advise you directly about which acquiring banks to use as this is a decision
that is determined more by your current banking arrangements than individual
price or service differences between providers. Acquiring services tend to be
offered by the UK
For instance, a low rate for taking card
payments may reflect that your bank is generating revenues from you in other
respects – a loan interest would be an example. Rates for card processing are
for this reason, highly variable and should be considered alongside all your
other banking charges. Furthermore, because of complex rules governing the way
acquiring banks assess risk (of allowing different businesses to take cards) it
is difficult for the online payments tool to model or predict exactly what the
costs might be.
Please click the following link to register
for the free to use Electronic payments comparison tool. As the tool can’t be
used to predict your exact acquiring costs, we have used a set of assumed
values that you can change after you have spoken to your business bank about
its likely rates. The typical rates we have used, produced in conjunction with
the banking industry are:
Typical
Rates
Setup Fee: £200 Monthly fee: £10
Debit: £0.35 per transaction
Amex: 3.0-4.0%
Diners: 3.0%
MasterCard & Visa: 2.5%
Bond: £1000
You may also find that the following list
of Acquiring banks useful in progressing your enquiries, either with your own
business bank or with a new provider if your bank cannot satisfy a particular
need:
•American Express Merchant Services
•Bank of
•Barclaycard Merchant Services
•DinersClub
•HSBCi /Global Payments
•Lloyds TSB cardnet
•Royal Bank of Scotland & NatWest Bank
•Ulster Bank
Overseas
providers
•euroConex – Euro
zone transactions•Paymentech – US and Canadian transactions
Specific card type resources
•STYLE
•Discover
•Maestro
•Switch
•Visa EU
•MasterCard
A
Payment Bureau
A Payment Bureau like Worldpay or Netbanx
is a one-stop solution collecting and processing the card details on behalf of
the business without requiring an Internet Merchant Service with an Acquiring
Bank or a separate PSP to be set up. Their simple application process makes
bureau services a popular choice for online payments and an ideal solution for
a SMEs first step into e-commerce.
A bureau collects funds via credit or debit
cards using ITS OWN acquiring service. The bureau collects money for multiple
retailers (tens of thousands of retailers for a large bureau service) to
achieve the trading volumes necessary to make the service profitable. The
bureaus in the UK
A bureau reduces the risk of accepting
almost any type of business through one principle mechanism - the bureau holds
the collected funds for 30 -60 days (settlement period) in the initial period
of accepting a business. There is a cost to this in terms of cash flow to your
business and possibly interest charges. You can accurately model these costs
using the free online payments comparison tool. as factors such as settlement period
and overdraft interest are included in the cost calculations.
As most fraud and refunds occur within the
first 30 days after a transaction, this is a very effective means of reducing
the exposure of the acquiring service that the bureau uses. In so doing the
costs of charge-back recovery are minimized as the bureau can simply refund
before the retailer banks the money. Additionally, the bureaus normally charge
more for card payments, at least 4% for credit cards and 50pence per
transaction for debit cards.
Advantages
•These services will accept most types of
business•Trading record or length of trading will not usually be an issue
•Fast turnaround for applications - a few working days compared to weeks - for a new merchant acquiring applications
Disadvantages
•Merchants’ funds are held for 30 - 60 days
•Transaction charges are higher( 4-8% )
Doing business over the Internet can be
daunting but if you enable customers to pay for products online, you can
generate actual revenues and make a return on the time and money you have spent
developing your website. A bureau service is the simplest way to begin taking
payments online.
You can also get the same service from a
Post Paid Account provider as they use trusted third parties to bring all
elements of the service under one roof. This usually includes all elements of
payment management from billing the customer to chasing any late payments.
Secure
on-line transactions
An order form is a simple page on your site
that the customer fills in with details of themselves and the goods they want
to buy. There is no automation and the fields in the forms are sent to you as
an e-mail and do not use a PSP.
As a very basic method of taking orders
through your online catalogue this can be very manual and labour intensive. An
automatic ‘buy product’ button can take the user to the order form page where
product details are already filled in but customers who want to buy separate
products need new forms for each one and it soon becomes clear that a simple
shopping cart product is more effective.
A simple form is NOT a secure way of
collecting card details. To be secure you, the Merchant, must use a secure
order form, which uses a secure server to email the customer’s credit card
information.
Like the code machines used in World War
Two, a secure server encrypts the message making it hard for criminals to
decipher (and steal) credit card information.
An offline PDQ swipe machine, available for
a small cost, will enable you to process the credit card details when you
receive them.
Advantages:
•Secure forms require a minimal outlay•Avoid paying for a Payment Service Provider facility.
•Avoid an extra internet merchant number for online transactions
•Merchants can manually screen orders as they come in and reject risky transactions
•Site superficially appears to be fully credit/debit card enabled
Disadvantages:
•Secure forms have limited use for more
than one product on your site. •Some bank acquiring services disapprove of merchants using an offline merchant number for Internet transactions so the merchant may be in breach of their acquiring bank’s terms and conditions.
•There is no “live” authorization of card details so incorrect details will still appear to have been accepted. Contact (by telephone) may then be necessary.
•Transactions are processed manually - time consuming.
BACS
This payment method is ideally suited to
business-to -business (b2b) transactions with regular or repeat customers. It
is already used to pay over 70 per cent of salaries of the
The advantages of BACS
1.Regular automated payments
2.Reduces time and cost of administering
bulk payments3.Helps manage cash flow and improve financial control
4.Reduces risk of loss, late payment and theft for customers
At the enterprise level, BACS can be
integrated with an e-commerce b2b purchasing system to allow automated
settlement of accounts between organizations.
Benefits:
As the BACS process is electronic, it
removes the need to write cheques, which can be a costly process, subject to
human error. Payments can be made much later in a business day, up to 9pm and
are cleared within two business days to any bank account. The payment method is
suitable for customers who are making more than 150 monthly payments.
Other
Alternatives
There are other ways of taking payments
online which can allow payments from customers without credit cards. You can
directly compare some of these alternative payment methods by clicking here to
register to use the e-payment comparison tool.
These payment services can stand alone in
certain cases but mostly exist alongside a mature PSP/Acquiring solution to
give customers extra choice. Although less well established, they can offer
substantial benefits to the customer. They may be worth considering if the
other bureaus or PSP are not an option - risk is assessed differently by these
services due to their added security or reduced susceptibility to credit card
fraud.
Person-to-Person - consumers set up an
account using their bank account details and the person-to-person solution will
then allow eligible merchants to debit this account directly when you make a
purchase. This form of payment is common on auction sites but can be used as a
general entry-level payment solution. more detail...
Mobile Commerce - allows a sale that has
been conducted over the internet to be confirmed by sending an SMS to the
customers mobile phone. The customer will normally need to set-up an account to
do this but once they receive the SMS they can then accept or decline the sale
that will (on acceptance) be charged to their bank account or mobile phone
bill. There is also a growing market in ‘drop-charges’ to mobile phones where
the call cost is charged at a premium to recover transaction costs. more
detail...
Pre-paid Cash Card - These cards can be
‘charged’ by the consumer using cash, credit / debit cards or direct debit from
a bank account and then used at participating websites and high street stores.
Commonly used when an e-cash environment is required for children without
credit-cards but also useful for small transaction amounts (even down to a few
pence) where the minimum credit card transaction charges would disproportionately
affect the profit in the sale.
Micro-billing - Many micro-billing type
payment solutions offer a premium telephone number billing service that is
essentially pay per view internet content hosted in a private area of the web.
Customers pay for this content via their Internet Service Provider (ISP) or
their phone bill. Charges are typically high for this service and it is really
only suitable for niche content areas.
No Payment Option
If you have no online payment mechanism, the customers manually contacts the merchant by phone or mail and refers to the online catalogue to place the order. Although less expensive, this method lacks efficiency, especially if customers want to order multiple products.
The expectations of online shoppers have
grown in past years and a flawed system may deter customers from putting their
trust in your product. They may feel the system lacks security and may be
reluctant to proceed with their purchase.
A phone number for the customer to call is
better than nothing, but are you missing sales by failing to offer an
electronic payment system to your customers?
You may be surprised to know that you can
engage with several online and electronic payment systems for very low or zero
fixed costs. These providers charge you a fixed or percentage cost of every
transaction with no monthly, annual or set-up fees. You can compare these
providers with the providers that charge fees by registering to use the free
online payments comparison tool. Please remember that even if a provider
charges you no fixed fee, you may still wish to pay an e-commerce agency or web
designer to implement the payment solution on your website.
