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Credit Card Merchant Services UK

The way that the UK consumer handles, spends and thinks of money has been changing. In August 2010 the amount of money spent via debit card transactions (£272billion) was larger than the amount of cash spent in the UK (£269billion) for the first time. 94% of people in the UK now carry credit or debit cards. Cash isn’t going anywhere of course, but the implications of increased card use are clear: if your business can’t take card payments, you’re missing out.

A merchant services provider can set you up a merchant account and payment mechanism so that you can reap the benefits of accepting card payments. The number of merchant services providers however is very large and the services they offer diverse. Choosing the right one for your business is therefore no simple matter.

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Merchant Services: An Introduction

A merchant account is essentially a special type of bank account that can accept credit and debit card payments. A merchant account need not be with an actual bank though – most merchants use dedicated merchant services companies who also provide the means for taking card payments. This takes one of three forms:

Credit Card Terminal

A chip and PIN terminal transmits the card and transaction details to the relevant card association (e.g. Visa, Mastercard) which authenticates the user and to the customer’s bank to authorise the transaction. The terminal then receives an approval or declined message, usually with a reason for any declination.

Virtual Terminal

For taking card payments by phone. The merchant inputs the customer’s card details into an online terminal provided by the merchant services company. The details are then sent over the internet and the transaction is approved or declined within a few seconds.

Online Payment Gateway

For taking card payments through an ecommerce site. The customer inputs the card details which are verified with the card association and bank over the internet. The transaction details are normally fed to the payment gateway automatically so the consumer doesn’t have to enter the payment amount etc. Payment gateways are encrypted using SSL standards to prevent data theft and fraud.

Once the card holder’s details have been verified with the card association and the payment authorised by the card holder’s bank there is still an opportunity for the card payment to be reversed if, for example, the transaction is later found to be fraudulent. For this reason there is normally a delay of at least a few days before the funds can be released to the merchant’s bank account.

Getting a Merchant Account

Credit Card Merchant

When transactions are forcibly reversed by the card holder’s bank, either because the transaction was fraudulent, the goods were never provided or due to a clerical error e.g. the transaction being processed twice, this is known as a chargeback. Under Visa and Mastercard rules, the merchant services provider is fully responsible for refunding the customer for such transactions which leaves them exposed to large potential losses in the case of fraud and misuse. For this reason, a merchant services provider will assess your chargeback risk before approving you for a merchant account.

Certain types of business are considered high risk due to their propensity of high numbers of reversed transactions or their potential for exploitation by fraudsters.

These include companies selling tickets, firearms or used cars, travel agents, letting agents and other ‘third parties’, operators of adult websites, charities and double-glazing companies. If your business is considered high risk, you may find your options limited and facing much higher charges.

Fees and Charges

Different merchant services providers charge different rates and fees. To compare providers accurately you therefore need a good estimate of how much money you’ll be taking through card payments and use this to work out average monthly fees from each provider. This does take a bit of work but can end up saving you a tidy sum over the long term.

The different types of fees and charges are:

Transactional fee

Every transaction incurs a fee calculated as a percentage of that transaction amount. This varies by card type, card issuer and the type of transaction (cardholder present/not present, cashback, standard purchase etc).

Statement fee

A merchant services provider may apply a standing monthly fee for the service. For online or virtual terminals this will include the cost of providing the payment gateway.

Terminal rental

You can purchase your own chip and PIN terminals but it is most common to rent from the merchant services provider.

Chargeback fee

Payment reversals due to fraud or merchant error will usually incur a fee.

Update charges

If your terminal or software needs to be updated, for example to take into account changes to the technology, this may result in a charge.

Set up fee

This applies for setting up your merchant account.

Cancellation fee

This will be enforced when terminating your contract with the merchant services provider prematurely.

When gathering quotes from merchant services providers ask for clear, transparent quotes which include all charges.

Other Considerations

Other things to consider when comparing merchant service providers include:

Cards accepted

Will your merchant account process transactions with holders of exotic cards like American Express or Diners Club? Will it accept funded cards like Visa Electron and Maestro? The more options you support the less likely you are to have to turn customers away.

Settlement period

How soon after the approval of a transaction will the funds be released to your account? This can range from a couple of days to a couple of weeks.

Service

Will customer service staff be available for telephone support at any time? How often will you receive statements? What guarantees are offered about the proper functioning of the hardware/software?

Credibility

Check that your merchant services provider is authorised and regulated as a Payment Institution by the Financial Services Authority.

Get as many quotes from different merchant services providers as you can to find the best deal for your business. Small differences in transaction rates and fees can add up to substantial amounts over the long term so be rigorous in your calculations. The time it takes will be worth it.

Once your merchant account is set up you’ll no longer have to turn away the rising number of customers who don’t habitually carry cash, there’s more chance that browsers will turn into customers and you’ll spend less of your time chasing up bank transfers and depositing cheques at the bank. With all these benefits to taking card payments, with use of cash dropping all the time and with the abolition of the cheque guarantee card, the time to turn to plastic is now.

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