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EXECUTIVE REPORT


Shuffle the cards


Cash is king when it comes to the success of any business. Adam Bernstein looks at how hirers can make savings on their card processing fees.


Some are wondering if cash is on its way out. According to a survey run by UK Finance published in August 2017, 10% of adults aged between 25 and 34 shun cash and rely instead on cards and digital payments for their day-to-day spending. On first blush, then, it seems simple. Retailers either accept credit cards, for which they pay a percentage of the transaction, or debit cards, which incur a fixed and generally lower cost per transaction.


In-built to the process are the acquirer’s charges, such as the ‘interchange fee’ - a charge between institutions for handling transactions which has been capped by law at 0.3% for credit cards and 0.2% for debit cards - previously it was typically 0.8%. (This capping is the reason why many cards have withdrawn their ‘free’ characteristics.) Then there is the ‘merchant service charge’ that retailers pay the acquirer for processing the transaction. This can vary widely depending on the retailer’s market power and negotiation abilities. However, there may be other costs, such as joining or setup fees to cover the costs of the new account, and a minimum monthly service charge (MMSC) - the minimum that an acquirer will charge irrespective of the level of transactions. Some providers such as Handepay don’t charge this.


Going direct


Most retailers think of the banks as being the acquirer that processes the transaction. However, they don’t: they re-sell services offered by others. Santander, for example, sells on behalf of First Data, while Lloyds uses Cardnet. So, while the banks are thought of as the experts that own the acquirer services, the reality is much different and it may be possible to get a better deal by going direct. It is almost impossible to give a charges benchmark as there are so many imponderables such as risk, market power and transaction volume. However, there are options for getting a better deal.


The first is obvious. Play hardball and negotiate as long as possible. This is clearly a gamble. The next option is to use what is termed an ‘independent sales organisation’ (ISO). Officially licenced and approved by the card processors, these firms re-sell a provider’s service en-masse - they buy a block of ‘service’ and, through


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economy of scale, get a better deal which is, in theory, passed on to subscribing retailers. The advantage here is that retailers are not buying a cheapened look-a-like product: they are buying the same thing that the banks are selling. Even better, because ISOs have the power of many they can, to an extent, insulate customers from price increases and they also can help with the application process. Organisations operating as ISOs include Handepay, Merchantservicesuk and Payatrader.


Independent processors Sites like Merchantmachine provide card cost comparisons.


It also pays to remember that there are independent card processors such as iZettle and Square Reader with their own mobile readers which are used in conjunction with smartphones. On-line comparison websites such as Cardswitcher and Merchantmachine are helpful.


The latter has a long, 93-entry, list of providers. Some limited pricing data is available to view. Interestingly, no fees are listed for the big players. See https://merchantmachine.co.uk/providers/. For a business wanting to switch it is a question of finding the right deal, as subscribing to a new card acquirer boils down to price. The services and terminals are virtually identical and are made by just three firms.


As with any contract, users should remember to benchmark service and price. They should never accept the first offer, as prices can vary by 40%. It is important to consider not just the headline transaction charges but, instead, the overall cost including terminals, authorisation, non-chip and PIN transactions.


When a contract comes to its end, it is worth asking if the acquirer can better their deal - after all, it works with the likes of insurers and satellite TV providers. However, users wanting to terminate early should keep an eye on fees and notice periods - these can involve a three-month notice period for the service and the payment of the balance of (say) a four-year contract for the equipment.


From January 2018, retailers are no longer be able to charge for accepting cards, which makes it even more important to keep processing costs in check.





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