Get started with card payments

So you’re thinking about accepting cards

A guide to accepting card payments for small and medium sized businesses in the UK

This guide has been put together to help you understand the entire process of taking cards, whether you already do or are thinking of doing it so you can make the right decision for your business. It can seem quite complicated so we’ve broken it down into easy to follow sections.

There are also some handy tips about contactless payment, practical working examples to help you compare one rate from another, and a guide to some of the common contractual pitfalls that many companies encounter, so that you can make the right decision for you first time.

Section 1. Fees & Costs

3. So why take cards in the first place? 4. How much is taking cards going to cost me?5. Basic Rates Explained6. Premium charges explained8. Authorisation fees explained9. Minimum monthly service charges (MMSC) explained10. How quickly will the money hit my bank account?10. Can I refuse to take certain cards that cost me more money?10. Can I pass the fees onto my customers?

Section 2. Understanding the process

11. Direct / Introducers / Payment Facilitators - which is right for you?13. What’s the process?

Section 3. Contracts

14. How long do you have to sign up for?14. Hidden costs to watch out for -114. I already accept cards. Is it easy to switch provider?15. What’s the alternative to accepting cards?15. Hidden costs to watch out for - 215. Annual fees: PCI DSS (Payment Card Industry Data Security Standard)15. Too good to be true?

Section 4. Terminals & e-commerce

16. Which is the right terminal for me?17. What about e-commerce?

Many business owners describe them as a ‘necessary evil’ because taking card payments costs you, the “merchant”, money. “Merchant” is payment industry terminology for a business that accepts credit and debit cards.

How many times have you stood in a queue and resisted picking up an extra item or two because you’re not sure if the shop you are in takes cards? For around £1 a day you should see a positive increase in your weekly takings.

You’ll need a couple of things before you can accept card payments:

1) A merchant account with a financial institution known as an “acquirer”

2) A payment terminal (for when you take payment from customers face to face) or a payment gateway (for when you want to accept payment over the internet on your e-commerce website)

What else do you get? Easy reporting and accounting, fewer trips to the bank to deposit cash and cheques, automatic deposits of cleared funds to your account normally every two to three business days after the transaction and security as you are not holding cash on the premises.

The people who provide the service charge a fee based on every transaction you make which is split between the card issuer, the card scheme and the acquirer. There’s more on who is involved in the process later in this document.

Card machines and e-commerce websites will keep customers coming back but how do they work and why does it all seem just so, well, complicated?

So why take cards in the first place?

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For around £1 a day you should see a positive increase in your weekly takings

How much is taking cards going to cost me?Everyone seems to offer something different, so it’s important to try and get it all on a level playing field so you can make the right decision for you.

Here’s an overview of what to expect with a merchant account:

Joining fees: These are variable, some providers charge but others don’t. Look around to see who charges and who doesn’t and factor this into the price. As a rule of thumb, you’re more likely to pay a joining fee if a representative comes out to see you, explains in detail the offer and completes the paperwork with you. This can give you the confidence to fully understand the set-up and as a result can be well worth the fee.

Merchant Services Charges (MSC):This is the most complicated section, as the price is calculated on each transaction and can vary from transaction to transaction, but to break it down very simply:

Price you pay for a transaction

Authorisation fee sometimes called Bank 24 on some statements

Premium charges processing costs for transactions that attract fees

above the basic rate, if applicable

Basic rate cost to process the transaction including

‘interchange fee’ and ‘scheme fees’

SECTION ONE: FEES & COSTS

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Basic Rates ExplainedPercentage or pence - which one’s for me?

This is very much dependent on the kind of transactions your business takes. Debit cards are usually charged as a pence per transaction but can at times be a percentage rate and credit cards are always a percentage rate. So the actual amount you’ll pay depends on the type of card your customer presents and the value of the transaction.

It’s important you understand the impact of the different types of fees you will encounter and how they are affected by your average transaction value.

The amount you might typically pay for a transaction of £1, £100, £1,000 and £10,000 are outlined below:

Chip and PIN

Most providers will quote you a basic rate for credit and debit card processing which is based on a “chip and PIN” transaction using a card issued in the same country it is being processed (i.e. here in the UK). That means the customer uses a card that has an electronic chip embedded into it and they validate they are the genuine owner of that card using a PIN (just like at the cash point). The payment card industry has invested significantly in the introduction of chip and PIN technology to help reduce plastic card fraud and these types of transactions are now the “norm” in the UK. They are also considered to be the most secure and, as such, attract some of the lowest fees which is why most providers use them in their quotes


Type of card Debit card Debit card Credit card

Charge rate 15p per 1.5% of each 1.5% of each transaction transaction transaction

Transaction: £1 15p 1.5p 1.5p

Transaction: £100 15p £1.50 £1.50

Transaction: £1,000 15p £15.00 £15.00

Transaction:£10,000 15p £150.00 £150.00

Contactless CardsContactless payment is becoming increasingly widespread. Consumers and businesses benefit from a quick transaction. Payment schemes are keen to encourage the use of contactless payment and are offering lower fees to process a payment made using this method. Rates for contactless transactions on credit cards do not change, however contactless debit card transactions are usually charged at a lower, or discounted, rate than standard chip and PIN transactions.

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Premium charges explainedAs a general rule, if you accept a card that meets any of the following criteria, you will pay more than the basic rate:

1) The card was issued outside the UK

2) The card is a business, commercial, fleet or corporate card

3) The card is classed as a “premium” card

4) The card does not use chip and PIN technology.

Sometimes you will be presented with a card that does not use chip and PIN, or your customer is not physically present and able to give you their card. The table on the following page explains the different ways of accepting a card


Intra-Regional premium

Transactions involving a card from a country outside the UK, but within the EU. For example, a credit card issued in Germany might carry an intra-regional premium of 0.2%. If your base charge was 1.5% you would therefore pay 1.7% to accept this card.

Inter-Regional premium

Transactions involving a card from a country outside the EU. For example, a credit card issued in Brazil might carry an inter-regional premium of 0.6%. If your base charge was 1.5% you would therefore pay 2.1% to accept this card.

Corporate / Commercial Cards

These are cards issued to businesses and usually carry some additional benefits to the cardholding business, such as detailed spending reports.

Premium cards

The card is designed to offer the cardholder “premium” benefits such as reward points. Such cards are usually issued to wealthy individuals who will typically spend more. Examples include MasterCard Signia and American Express.

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Chip and PIN

This is the safest and most secure way of processing a card transaction and, as such, attracts the lowest charges. The cardholder usually puts their card into a terminal and enters their PIN to confirm they are the genuine cardholder.

Mail Order, Telephone Order (MOTO)

The cardholder gives you their card number and expiry date over the phone or by mail order and you key it into your terminal or virtual terminal. This is riskier than chip and PIN because you cannot easily validate you are dealing with the genuine cardholder.

TIP – always ask for and enter the 3 digit security code on the back of the card as this is an additional anti-fraud measure and you may pay more for your transaction if you do not.

Magnetic Stripe

The card does not have an electronic chip and you “swipe” it. This is riskier because the security measures included in the chip are not being used. The terminal will print a receipt and the customer will sign it to confirm they are the genuine owner of the card.

E-commerce(Secure)

The transaction originates on the internet (via your e-commerce website). You offer your customers “3D Secure” (Verified by Visa or MasterCard SecureCode – where the cardholder is directed to a page hosted by their bank to enter an extra password). 3D secure adds an additional security measure to help validate the cardholder is genuine and reduce the risk of fraud and therefore are considered more secure.

PAN Key Entered (PKE)

The chip and / or magnetic stripe are defective and you are required to key enter the long card number and expiry date. This is also risky because the security measures included in the chip are not being used. The terminal will print a receipt and the customer will sign it to confirm they are the genuine owner of the card.

E-commerce (Non-Secure)

The transaction originates on the internet (via your e-commerce website). You do NOT offer your customers “3D Secure” (Verified by Visa or MasterCard SecureCode). There is a higher premium to pay for “non-secure” e-commerce transactions because the chance of fraud is higher.

Card Present Card Not Present

Contactless If the cardholder has a contactless enabled card and you have a contactless enabled terminal, transactions under £20 can be authorised by “tapping” the card onto the reader. Because the transaction value is capped and every so often, the cardholder will be prompted to insert their card and enter a PIN. These transactions usually attract a lower processing cost than chip and PIN.

Manual Voucher / Manual Imprinter

You hand-write a voucher, which the customer signs, and take an imprint of the card on a manual “zip/zap” machine. There is a significant cost to process manual vouchers and there is very limited security, as such providers charge a very high premium for using them.

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Authorisation fees explainedAuthorisation fees are not universally charged, but where they are, expect to pay around 3p per transaction. Not everyone charges them and rates do vary, so make sure you ask about them and don’t be afraid to negotiate. 3p might not sound like much, but if the average value of your transactions is low, then it can impact the actual rate you pay quite significantly.

So, to work out the total merchant service charge and understand how much a transaction will actually cost you, remember the table we used earlier:

In short, if you’re looking at different providers, it’s important that you understand the details of their quotes and compare them like for like. Those that may appear cheapest on the surface do not always represent the best value overall.

Price you pay for a transaction

Authorisation fee

Premiumcharges

Basic rate

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Example:

To illustrate how an authorisation fee impacts on the overall charge, here is an example:

Transaction Value = £10Basic Credit Card Rate = 1.5%Authorisation Fee = 3p

Amount You Pay:£10 transaction x 1.5%

credit card rate = 15p

15p + 3p authorisation fee = 18p

*The effective rate you are paying for this transaction because of the authorisation fee is 1.8% - because (18p / £10) * 100 = 1.8%

Minimum Monthly Service Charges (MMSC) explainedYour merchant account may have a MMSC applied. This is a fee that is applied if you do not accrue a pre-determined level of card payment fees in a single month. For example, if your minimum monthly charge is £25 and you have accrued £10 in transaction fees, you will be charged an additional £15 to top it up to the minimum monthly charge. If you have accrued more than £25 in transaction fees, then you won’t need to pay a top up. Look for this on your contract and ensure it is clearly stated.

Here are some examples of how MMSC works:

Example 1 Monthly turnover of card payments of £2,000 where the merchant service charges are 1.5% for credit cards and 15p for debit cards, with £600 of the transactions taken on credit cards and £1400 (70 Transactions) on debit cards. MMSC is £25.

Example 2Monthly turnover of card payments of £3,000, where the merchant service charges are 1.5% for credit cards and 15p for debit cards, £900 on credit cards and £2,100 on debit cards (105 transactions). MMSC is £25.

Monthly Credit Card Fees

Monthly Debit Card Fees

TotalMonthly MSC

MMSC Monthly Grand Total

£600 * 1.5%

£9.00 70 Transactions @ 15p each

£10.50 £19.50 £5.50 (£25 minus £19.50

£25

Monthly Credit Card Fees

Monthly Debit Card Fees

TotalMonthly MSC

MMSC Monthly Grand Total

£900 * 1.5%

£13.50 105 Transactions @ 15p each

£15.75 £29.25 £N/A as MSC is greater than MMSC

£29.25


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How quickly will the money hit my bank account?It depends on the terms of your agreement and where you hold your bank account, but expect an average of two to three business days. The money is paid straight into your bank account as cleared funds. Sometimes it is paid to you in full (known as gross settlement) and the fees are deducted from you by Direct Debit at the end of the month, sometimes providers deduct their charges before they send you the money (known as net settlement).

Net settlement can sometimes cause businesses problems when reconciling their card payment receipts with the amount that is credited to their bank account because the amounts don’t match, so be sure you know which type of settlement applies to you.

Can I refuse to take certain cards that cost me more money?MasterCard and Visa operate an “honour all cards” rule which means if you process their cards, you are required to accept all the different types of cards carrying their brand marks that are presented to you. For example, you could not decide to only process Visa consumer debit cards and not Visa consumer credit cards. American Express requires a separate processing agreement directly with them and the charges are usually slightly higher than for Visa and MasterCard cards. It is up to you whether you choose to accept American Express cards but if you do, under their terms you are required to accept their cards on an equal footing with Visa and MasterCard cards.

It’s also worth pointing out that under card scheme rules, you are not meant to impose a minimum spend for a card transaction.

Can I pass the fees onto my customers?There is various legislation and card scheme rules covering this topic so check your individual circumstances to be sure, but the answer is usually yes, as long as you do not charge more than you are being charged. The difficulty is the amount is not always easy to know due to type of card being presented and what fees will therefore be applied. You may also find that your customers are put off from using cards as a payment method if you impose a fee for accepting them, which could ultimately mean less business for you.

Although it seems to happen instantaneously, there are many different bodies involved in processing a card transaction and the cost passed to you the “merchant” is shared between all of the bodies involved.

The only party who doesn’t usually pay is the cardholder (unless the card is from outside the UK, in which case the cardholder may have to pay a currency conversion charge to their card issuer).


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The following bodies are involved in the transaction process and receive some payment out of the merchant services charges:

Here are some examples of companies who are involved in handling a card payment transaction (not an exhaustive list)

Cardholder: Individuals or businesses that use cards to pay for things (your customers in other words)

Card Issuer: High Street banks, M&S Money, MBNA, Capital One (in short any financial institution who provides credit and debit cards to their customers)

Card Scheme: MasterCard, Visa, American Express, Diners Club, JCB

Acquirer: WorldPay, Global Payments, Elavon, Barclaycard

Merchant: A business which accepts card payments

SECTION TWO: UNDERSTANDING THE PROCESS

Card Issuer The financial institution that provided the card to the cardholder/consumer

Acquirer The financial institution that facilitates the authorisation, processing and settlement of the transaction

Card Scheme The card network / brand shown on the card (e.g. Visa, MasterCard, American Express)

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SCHEME

ISSUER

CARD HOLDER

ACQUIRER

DIRECT

MERCHANT

INTRODUCER

FACILIATATOR

DIRECT

Direct / Introducers / Payment Facilitators - which is right for you?

Direct:

This is the most common relationship if you are a large company with a lot of outlets processing a lot of transactions e.g. a large chain of shops, a large network of pubs, a large online retail shop processing thousands of transactions every day and need dedicated relationship and banking support.

The more transactions you take, the more power you have when negotiating rates directly and the greater support you will get in terms of use of the system. Most large national and international businesses deal direct with an acquirer.

Introducers/Resellers / Independent Sales Organisations (ISO’s):

Introducers are authorised resellers of an acquiring service e.g. Handepay help to give small and medium sized businesses greater buying power as they represent over 20,000 businesses. They can often secure better rates from the acquirer than a sole merchant can by themselves. They will also usually offer a telephone line help service to deal with any issues with the terminal, the service etc and send a local representative to meet you face to face to help with the application.

Payment Facilitators:

These can help very small and micro businesses to offer a card facility. They represent a very large number of these businesses who are turning over small amounts on cards. The acquirers treat these companies as a sole entity, and they take a lot of the financial risk that usually rests with an acquirer on themselves. As such they pass the cost of that risk onto their customers.

They usually charge a percentage of the value of every transaction (typically 2.75-3.35%) and can also hold on to the money from each transaction for longer before releasing it. Standard practice for acquirers is the transaction day, plus two to three working days but payment facilitators have been known to wait for two weeks or longer before the merchant receives the money which can seriously impact cashflow. Because they charge comparatively high processing fees, they are usually not suitable for businesses with turnover on cards above a few thousand pounds per annum.


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What’s the Process?Providers look at a range of factors to assess your business before they agree to offer a facility, just like when you apply for any financial services. These include checks such as what your business does, financial checks and whether you sell face to face or over the internet.

There will usually be some paperwork to complete (although most providers will help you with this) and you’ll be asked for some “proof” of your identity and address. The information you provide is used to run the checks that providers need to complete in order to comply with regulations.

Providers all have different systems for assessing applications. If you are in a business sector that is considered “high risk”, you may find your application for a merchant account is turned down, or that it takes longer to process than you thought, or more information is requested from you. If you are turned down you can always ask for your application to be reconsidered if you believe the decision was wrong. You can also apply with a different provider and may get a different result, because each provider has their own “appetite” for different types of business.

Most applications are processed in a few days and you can be up and running in as little as a week from the day you sign the agreement, though you should think about allowing more time than this to set your facility up just in case there are any problems along the way.


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If you choose to have a direct or an introducer relationship you will typically have two contracts in place:

1) With the terminal supplier

2) With the acquirer (who may also be the terminal supplier)

This does vary, so make sure you ask.

How long do you have to sign up for?Contracts usually run from 12 to 60 months. As you would expect, the longer you sign up for, the better the terminal fees you might be offered.

Much like mobile phone contracts, it’s up to you to know when your contract is up and either keep it going, re-negotiate or switch. Your relationship with your provider will include a point where you have to notify them if you want to end the relationship or re-negotiate terms, or the contract may roll over into another period. It’s not their responsibility to tell you - so check the notice period (usually 3 months before the contract is due to come to an end) and put a note in your diary.

I already accept cards. Is it easy to switch provider?Switching is easy and you can make savings as rates offered to switchers are often better than those for new to cards or existing customers.

But beware. There will be a notice period and possibly an exit fee for terminating your agreement(s) so always check the details of your contract.

SECTION THREE: CONTRACTS

Hidden costs to watch out for1. Exit fees, ‘re-stocking’ fees

If you give notice as set out in your

contract, you can exit at any time.

Usually, outstanding amounts on the

contract must be paid up, just like

a mobile phone contract, but some

providers will charge you a fixed fee

which could be up to £200 per outlet to

close an account, with further charges

up to £200 to ‘re-stock’ a terminal

(that’s get it from you and get it in shape

for their next customer). So if your

business has four outlets, each with a

terminal, it could cost you up to £1,600

to close your account. Other suppliers

don’t charge anything, so again, check

your contract.

When you’re switching, some providers

may offer you incentives, such as

cashback, to move to them. You can

use this to help cover any exit costs you

might face on your previous contract.

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What’s the alternative to accepting cards?If you don’t want to accept card payments from your customers, you could limit your payment options to cash and cheque but this is unlikely to help you maximise your sales and keep customers coming back. If you’re trading online, then other options such as PayPal might be worth considering.

But as with any provider, make sure that what you are agreeing to is suitable for your business. Understand the costs involved and don’t limit yourself to one type of payment. For example, PayPal seem like a convenient option for a fledgling online business but ask yourself if all your potential customers have a PayPal account (and know how to use it). If they don’t, you might be missing out on valuable sales by not offering a broader range of payment options.

Too good to be true?Remember, some providers will only quote you the basic rate which could seem too good to be true and does not reflect the true cost you will pay. If you have found a deal that looks amazing make sure your check the small print. How do the rates for different types of transactions compare to other deals around? Are they being open about premium charges, authorisation fees, exit fees etc?

SECTION THREE: CONTRACTS

3. Annual fees: PCI DSS (Payment Card Industry Data Security Standard)

This is a mandated requirement by the

payment schemes (Visa, MasterCard)

that every business that accepts,

transmits or stores cardholder data

MUST comply with. It’s about the secure

storage and processing of important

cardholder data to protect against fraud

and other financial crime. There are

four categories of PCI – most small and

medium sized businesses are level 4,

small enough that they can self-certify.

If you process more than 20,000 Visa

payments via the internet, this pushes

you up a level and, if you have high card

turnover (1m+ Visa transactions per

annum) this can push you into a higher

level still.

Hidden costs to watch out for2. Swapout fees –

If your terminal breaks, how will it be

fixed or replaced? Some suppliers insist

on an engineer installing your terminal

and will charge you for their time.

If something goes wrong, the same

engineer must return to fix the problem

and you will be charged again, plus a

swapout fee for a new terminal. Other

suppliers will send you the terminal and

you can install it yourself (usually very

simple) and it costs you nothing.

TIP: Register your compliance status with your provider

as quickly as possible. Some companies charge in excess

of £70 every month per merchant account if you go

beyond the three month deadline without registering

yourself as compliant.

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Mobile terminals use a SIM card like a mobile phone and are used mainly by delivery services, market traders, tradespeople and other businesses on the go – anywhere where there isn’t a fixed point of sale or telephone/broadband connection. Of course, they require a mobile phone signal to be present so they aren’t suitable for locations where signal is very weak or not present.

Some of the latest mobile terminals use a small card reader and PINpad which connects to a smartphone or tablet using Bluetooth. Users download a special “App” which enables them to enter the transaction amount and email receipts to their customers.

2. Mobile

Portable terminals offer a degree of flexibility because you can move the terminal to where your customers are, within a certain range of a base unit. The base unit connects directly to your phone line or broadband connection, just like countertop terminals, but it also communicates with the terminal handset using secure Bluetooth.

They are popular with hotels, restaurants, bars, hairdressers, pubs, coffee shops etc i.e. situations where the customer is not always next to the phone line or broadband connection or you want to offer a pay at table service. They usually have a range of up to 100 metres and can process up to 200 transactions on a single battery charge (in ideal conditions).

3. Portable

These provide a fast and secure way to accept card payments from your customers at a fixed location. They can operate via dial-up (using your phone line) or IP (using your broadband connection) and fit on most counters.

1. Countertop

Which is the right terminal for me

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SECTION FOUR: TERMINALS & E-COMMERCE

SECTION FOUR: TERMINALS & E-COMMERCE

What about E-commerce?Many businesses are taking advantage of the huge growth in online retail by setting up their own e-commerce website. If you do this, among other things you’ll need a payment gateway. Think of this as a terminal for the internet. It’s a secure site on the internet which is linked to your e-commerce store where consumers can safely enter their card details. The payment is then submitted to the acquirer for authorisation, just like a terminal, and customers receive an electronic receipt.

There are many providers of payment gateways, but you need to be sure the one you choose is “approved” by your acquirer. They normally charge a monthly fee for a “bundle” of transactions or a certain amount (usually a few pence) per transaction. Many offer a back office system which lets you see detailed reports of the transactions that have been processed and do other functions such as sending refunds.

TIP: remember different types of transaction e.g. where the cardholder is not present, e-commerce (where the transaction originates on the internet) are processed above the basic rate. It’s important to think about the people you do business with, the types of cards they use and where they use them before choosing the best deal for you.

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What next?You can submit your payment questions to us at [email protected] We’ll aim to get back to you with an answer as soon as we can and we’ll select the most common questions and add them to the Q&A section on our website.

We hope you found this guide useful, but the payments industry is complicated and it would be impossible to squeeze everything into one simple guide. We’ve tried to cover the main subjects customers tend to ask us about and we hope we’ve helped shed light on a complicated subject.

If you’d like to talk to Handepay about getting a merchant account, please contact us at [email protected] or call 0800 377 7382.

The content in this guide is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site including, without limitation, entering into any contract.

Although we make reasonable efforts to update the information on our site, we make no representations, warranties or guarantees, whether express or implied, that the content on our site is accurate, complete or up-to-date.

Get started with card payments

Small Business & Entrepreneurship

Transcript of Get started with card payments