As Internet technology now allows bills or invoices to be presented electronically and then paid at the presenting web site (whether this is a bank’s site, merchant site or third-party site) in this brief article we investigate whether this carries any significant risk from a payee/consumer or merchant perspective.
Perhaps the very first test of potential “riskiness” when using any electronic presentment and payment (or EBPP for short) web site is whether it is secure. The vast majority of web page addresses, also known as URLs, typically begin with "http." However, to pay bills online, the web page should always start with "https," which signifies a secure socket layer or SSL connection (or one in which data is fully encrypted). This typically means that you can see a padlock icon, usually in the top or bottom corner of the browser window (or in some cases it may even turn the URL address background green or light blue). Clicking the padlock icon will often reveal the site's security certificate (and allow you to read about the particular protection that this affords).
Now that a consumer knows that he or she is on a secure site, the next step is to ensure that the login process is secure. A good site will usually give a consumer two options-to pay instantly or as a guest, and to register on the site to use it again and save time on the next occasion the consumer uses it. As a guest, a web site will typically only ask for an email address and then ask a consumer how he or she would like to pay from the options they make available. This may mean entering debit or credit card details for example, which should then give a consumer the option to confirm the transaction (and then as a further security step run the transaction through 3D secure-a process used by major credit card companies as an added XML layer for online credit and debit card transactions. Visa call this process “Verified by Visa”, MasterCard call it “MasterCard SecureCode”, JCB International call it “J/Secure” and American Express call this “SafeKey”. Overall then, a well-constructed site will offer a safe payment system for consumers (and there are card and bank protections on fraud and low limitations on consumer liability in any case). Even so, consumers should also look for extra safety in specific statements on any given EBPP site about PCI compliance (or payment card industry standard adherence) and/or that credit/debit card data or numbers will not be stored or saved in any way (and if they are, that they will be fully encrypted and tokenised as a further protection against theft or fraud).
When registering (either before or after a bill had been viewed and paid) a well-designed and safe web sites will ask a consumer to set up a user name and password that he or she can remember and that identifies the consumer every time he or she uses the site in the future. The site may also ask for additional data such as email address, physical address, date of birth, driving license number or even passport number. In some cases, they may go yet further and ask security questions to help validate a consumer’s identity in the case of a future forgotten login ID or password. Although these may seem personal and even intrusive, these steps are all designed to protect consumer security and ensure that only one person is able to see the bills posted and to effect payment of any kind. In other words, this process allows the web site operator (financial institution or merchant) to know the customer (a process they call KYC) and protect everyone’s security to the best of their ability.
In general, research suggests that consumers worry most about using credit and debit cards on online sites of any kind. However, in the world of bill payment (as opposed to online shopping for example) these risks are not as great. Even a person with a stolen credit card number is highly unlikely to pay a bill for another person (assuming he or she had the bill details to enter) and even if they did, the risk would be with the merchant and not the consumer. So what about merchant side risk?
For a merchant, the greatest risk is charge-backs. This is where the credit or debit card holder disputes the transaction anywhere up to 6 months after the transaction date. Charge backs can either be because the card holder disputes that they made the transaction at all (i.e. it was a stolen or fraudulent), or because they did receive anything in return for the payment that was made. The second reason for chargebacks in the bill pay space is very rare, but the first reason-theft or fraud is obviously quite common (with total estimated costs of just under £1 billion in the UK in 2010). This is why online billpay web sites need to take so much care to ensure that card holders (who are not present as they are in a retail transaction) are who they say they are.
Summary
In the final analysis, for those EBPP sites that have a clear secure socket payment layer (SSL), have clear statements about security of information and sound compliance and a well-structured registration process, consumers face very low levels of risk (with a very low liability even when a rare problem may arise in any case). The merchant however, faces potentially much more risk arising from both debit and credit card fraud (and therefore possible charge-backs), but risk this can be mitigated with good consumer checking processes that are made easy for every customer to the site to use.
Showing posts with label debit card. Show all posts
Showing posts with label debit card. Show all posts
Wednesday, 21 December 2011
Thursday, 21 July 2011
Why the massive rise in using debit cards matters to all organisations
According to figures released by the payments council at the beginning of 2011, debit card expenditures more or less matched cash expenditures for the first time ever in the UK (and are expected to outstrip it easily in 2011). According to the statistics, there were around 6 billion purchases made using debit cards in the UK during the previous 12 months, an annual rise of nearly 9% and these transactions were worth a combined £265 billion, at an average value of £44 (up 7.5% overall). Yet while there were the much greater 21.4 billion cash transactions made in that same period (which was nonetheless down by 5.2%), the total value of these payments fell by 0.4% to about the same £265 billion figure.
Now clearly, these figures do not mean that cash is disappearing any time soon, especially since these lower average expenditures of £12 or less are often most conveniently settled by cash. However, it does signal that a lot of non-retail spending in particular is shifting to debit card use (and even some retail too with the interest in payment using NFC technology and smart phones in the near future) and perhaps the greatest area in which this likely to be significant is in paying bills (especially those sent from Government or Business to consumers).
What is driving this trend is that cheque writing is falling steadily (and of course is planned to disappear by 2018 in the UK). In fact, over 100 million fewer cheques were written in the UK in 2010 by consumers and it is the debit card that seems to be the preferred alternative, rather than the credit card. In 2010, credit cards accounted for £125.4 billion worth of payments, an annual fall of 0.7%, with 2 billion separate purchases (making an average credit card transaction £63). Hence, debit card transactions outnumbered credit card payments by three to one and represented more than twice the overall spend.
So what does all of this change mean for organisations on how they currently do business? Well first and foremost, accepting payment by debit card becomes pretty critical. Many small businesses (and even a few medium to large ones) do not at the moment and may well lose customers to competitors in the future. Beyond this perhaps obvious issue is the fact in the modern world people are happy to save as much time as they can and a debit card can often meet this need for faster transaction time and greater convenience (especially when paying over the web).
The benefits of accepting, and even encouraging debit card payments are many for the organisation and include:
•Less trips to the bank (with cash and/or cheques)
•Greater security (with less cash and cheques to keep safe)
•Extended opening hours for payment (allowing customers to pay by telephone or over the Internet 24/7 and 365 days a year-an outcome that can be set up immediately with a relationship with a web billing and payment portal such as PaySwyft.
•A faster transfer of funds to the organisation’s bank account than most other methods
•Generally cheaper than handling cash or credit cards
•Typically much lower charge-back risks than with credit cards
Each of the above is probably compelling reason enough for any business to take debit card payments, but in combination and given this payment type’s rapidly increasing popularity amongst consumers, the decision becomes extremely compelling in today’s fast-moving commercial climate.
Now clearly, these figures do not mean that cash is disappearing any time soon, especially since these lower average expenditures of £12 or less are often most conveniently settled by cash. However, it does signal that a lot of non-retail spending in particular is shifting to debit card use (and even some retail too with the interest in payment using NFC technology and smart phones in the near future) and perhaps the greatest area in which this likely to be significant is in paying bills (especially those sent from Government or Business to consumers).
What is driving this trend is that cheque writing is falling steadily (and of course is planned to disappear by 2018 in the UK). In fact, over 100 million fewer cheques were written in the UK in 2010 by consumers and it is the debit card that seems to be the preferred alternative, rather than the credit card. In 2010, credit cards accounted for £125.4 billion worth of payments, an annual fall of 0.7%, with 2 billion separate purchases (making an average credit card transaction £63). Hence, debit card transactions outnumbered credit card payments by three to one and represented more than twice the overall spend.
So what does all of this change mean for organisations on how they currently do business? Well first and foremost, accepting payment by debit card becomes pretty critical. Many small businesses (and even a few medium to large ones) do not at the moment and may well lose customers to competitors in the future. Beyond this perhaps obvious issue is the fact in the modern world people are happy to save as much time as they can and a debit card can often meet this need for faster transaction time and greater convenience (especially when paying over the web).
The benefits of accepting, and even encouraging debit card payments are many for the organisation and include:
•Less trips to the bank (with cash and/or cheques)
•Greater security (with less cash and cheques to keep safe)
•Extended opening hours for payment (allowing customers to pay by telephone or over the Internet 24/7 and 365 days a year-an outcome that can be set up immediately with a relationship with a web billing and payment portal such as PaySwyft.
•A faster transfer of funds to the organisation’s bank account than most other methods
•Generally cheaper than handling cash or credit cards
•Typically much lower charge-back risks than with credit cards
Each of the above is probably compelling reason enough for any business to take debit card payments, but in combination and given this payment type’s rapidly increasing popularity amongst consumers, the decision becomes extremely compelling in today’s fast-moving commercial climate.
Thursday, 9 June 2011
Why do all businesses need a Merchant Account and what is the best way to go about getting one?
Traditionally, to be afforded the opportunity to accept credit and debit cards from their customers any organisation (typically called a “merchant” by the financial services industry) must be granted so-called “proper” status as a bank. This proper status is given to a merchant through the vehicle of a unique Merchant ID (or MID) from the bank and allows them to participate in the payments chain. Pretty much all large businesses have a merchant account like this. However, the smaller the organisation gets, the less likely that they will have one and may be missing out on the benefits.
The banks which provide a merchant account are not quite the same as the ones with which we are most familiar as personal current account holders. All major high street banks have what is known as an “acquiring” bank arm or division. For example, in the UK NatWest has 'Streamline', Lloyds-TSB has 'Cardnet', HSBC has 'HSBC Merchant Services' and so on. In addition, some organisations outside the high streets banks (like American Express and PayPal for instance) have a license and do their own acquiring. Subject to a range of pre-conditions, all these “acquiring banks” issue a Merchant ID and allow an organisation of any sort to start taking credit and debit cards. They will then approve or decline each customer transaction made, collect any payments on the merchant’s behalf and pay the money into a merchant’s nominated bank account.
There are clearly costs involved in setting up this merchant account - in most circumstances the acquiring bank will include setup charges, monthly or annual fees, monthly rental of a physical terminal (or PDQ machine) for the merchant to process card details, and they may require a merchant to pay for a dedicated telephone line for the terminal. A merchant will also be charged a percentage of each transaction which they process, may have a minimum monthly volume of business imposed, and in some cases, have to provide a substantial “bond” or deposit as additional security (to cover any potential card “charge-backs” that may occur).
Sadly perhaps, that's the relatively easy part of the process! - before a merchant can even start the process, they will have to convince the acquiring bank that they are worthy of their trust, and a merchant will usually have to provide two years audited accounts and demonstrate a sound business track record in order for the application to proceed (which is why some banks also require a cash bond and an full business plan if a merchant cannot satisfy all that, for whatever reason).
Even if a merchant meets these requirements, they will usually only be able to accept card payments in the “traditional” part of the business only. If a merchant wants to set up a web site to accept card payments they will find that the acquiring banks will not accept any information coming from the merchant directly via the Internet. The banks will only accept information from a web site which has been processed by an approved Payment Service Provider or PSP (who will do this on a bulk basis and in a safe and secure way –and according to PCI or Payment Card Industry compliance rules).
A Payment Service Provider’s function is to integrate a merchant’s e-commerce enabled web site with the major credit card networks so that orders generated by a merchant’s own or chosen 'shopping cart' software can be authorised and payment collected. This payment is then transferred to a merchant’s account for onward remittance to another receiving bank account as necessary.
As you might expect every merchant has to go through quite a formal application process in order to get an agreement in place with a PSP. Their terms and conditions and charges vary enormously from one PSP to another and it is very difficult to make exact comparisons. Merchants also need to be aware that whatever charges any PSP makes will always be added to those charges which are levied by the acquiring bank providing the Merchant Account. This means any merchant may well end up paying two lots of set-up charges, monthly/annual fees, and, worst of all, two lots of percentages (plus fixed fees in some cases) on every transaction.
So, you might be thinking, with all of these hurdles:
1. why would a small organisation in particular bother with all of this? and
2. are there better ways to go about the necessary merchant account sign up steps if the journey to doing so is deemed to be worthwhile?
The answer to the first question is relatively straightforward. For most businesses turning over say more than £100,000 a year, the ability to offer credit and debit cards payments will bring not only extra revenue but will also accelerate cash-flow (to some extent at least). This will usually easily recover the outlay made on setting up a merchant account and make incremental profit into the bargain. Fixed fee payback would be expected to be within the first 6-9 months and thereafter the benefits would typically be significant for most businesses.
The answer to the second question is also a positive one. As the Internet (and web 2.0 technology in particular) has evolved in recent years, there are now several businesses that a merchant can approach to be a “one-stop-shop” when it comes to taking payments (credit, debit and even other types). In other words, these businesses will handle all of your merchant needs, including setting up the necessary relationship with both the bank (the acquirer) and the processor (the PSP) and may offer other services also. At a simple level this is likely to be more flexible customer service (a single point of contact with a real person for example) but may include other services (such as e-wallet capability-such as PayPal offers for instance or electronic billing capability-such as PaySwyft offers for instance). In addition these “one-stop-shop” businesses can often lower overall costs and reduce administrative hassle as well as operate on a “pay-as-you-go” basis. This means that even small merchants can accept credit and debit cards quickly and cost effectively and start to reap the benefits that have mainly only been available to the larger organisations in the past.
Useful additional information on this subject can be found on many websites. One of these is www.web-merchant.com (see www.web-merchant.co.uk/howdoesitwork.asp ) from which some of the above material was drawn.
The banks which provide a merchant account are not quite the same as the ones with which we are most familiar as personal current account holders. All major high street banks have what is known as an “acquiring” bank arm or division. For example, in the UK NatWest has 'Streamline', Lloyds-TSB has 'Cardnet', HSBC has 'HSBC Merchant Services' and so on. In addition, some organisations outside the high streets banks (like American Express and PayPal for instance) have a license and do their own acquiring. Subject to a range of pre-conditions, all these “acquiring banks” issue a Merchant ID and allow an organisation of any sort to start taking credit and debit cards. They will then approve or decline each customer transaction made, collect any payments on the merchant’s behalf and pay the money into a merchant’s nominated bank account.
There are clearly costs involved in setting up this merchant account - in most circumstances the acquiring bank will include setup charges, monthly or annual fees, monthly rental of a physical terminal (or PDQ machine) for the merchant to process card details, and they may require a merchant to pay for a dedicated telephone line for the terminal. A merchant will also be charged a percentage of each transaction which they process, may have a minimum monthly volume of business imposed, and in some cases, have to provide a substantial “bond” or deposit as additional security (to cover any potential card “charge-backs” that may occur).
Sadly perhaps, that's the relatively easy part of the process! - before a merchant can even start the process, they will have to convince the acquiring bank that they are worthy of their trust, and a merchant will usually have to provide two years audited accounts and demonstrate a sound business track record in order for the application to proceed (which is why some banks also require a cash bond and an full business plan if a merchant cannot satisfy all that, for whatever reason).
Even if a merchant meets these requirements, they will usually only be able to accept card payments in the “traditional” part of the business only. If a merchant wants to set up a web site to accept card payments they will find that the acquiring banks will not accept any information coming from the merchant directly via the Internet. The banks will only accept information from a web site which has been processed by an approved Payment Service Provider or PSP (who will do this on a bulk basis and in a safe and secure way –and according to PCI or Payment Card Industry compliance rules).
A Payment Service Provider’s function is to integrate a merchant’s e-commerce enabled web site with the major credit card networks so that orders generated by a merchant’s own or chosen 'shopping cart' software can be authorised and payment collected. This payment is then transferred to a merchant’s account for onward remittance to another receiving bank account as necessary.
As you might expect every merchant has to go through quite a formal application process in order to get an agreement in place with a PSP. Their terms and conditions and charges vary enormously from one PSP to another and it is very difficult to make exact comparisons. Merchants also need to be aware that whatever charges any PSP makes will always be added to those charges which are levied by the acquiring bank providing the Merchant Account. This means any merchant may well end up paying two lots of set-up charges, monthly/annual fees, and, worst of all, two lots of percentages (plus fixed fees in some cases) on every transaction.
So, you might be thinking, with all of these hurdles:
1. why would a small organisation in particular bother with all of this? and
2. are there better ways to go about the necessary merchant account sign up steps if the journey to doing so is deemed to be worthwhile?
The answer to the first question is relatively straightforward. For most businesses turning over say more than £100,000 a year, the ability to offer credit and debit cards payments will bring not only extra revenue but will also accelerate cash-flow (to some extent at least). This will usually easily recover the outlay made on setting up a merchant account and make incremental profit into the bargain. Fixed fee payback would be expected to be within the first 6-9 months and thereafter the benefits would typically be significant for most businesses.
The answer to the second question is also a positive one. As the Internet (and web 2.0 technology in particular) has evolved in recent years, there are now several businesses that a merchant can approach to be a “one-stop-shop” when it comes to taking payments (credit, debit and even other types). In other words, these businesses will handle all of your merchant needs, including setting up the necessary relationship with both the bank (the acquirer) and the processor (the PSP) and may offer other services also. At a simple level this is likely to be more flexible customer service (a single point of contact with a real person for example) but may include other services (such as e-wallet capability-such as PayPal offers for instance or electronic billing capability-such as PaySwyft offers for instance). In addition these “one-stop-shop” businesses can often lower overall costs and reduce administrative hassle as well as operate on a “pay-as-you-go” basis. This means that even small merchants can accept credit and debit cards quickly and cost effectively and start to reap the benefits that have mainly only been available to the larger organisations in the past.
Useful additional information on this subject can be found on many websites. One of these is www.web-merchant.com (see www.web-merchant.co.uk/howdoesitwork.asp ) from which some of the above material was drawn.
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