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Everything You Need to Know About Card Fees and Processing Costs

Cash is king when it comes to the success of any business, especially in retail and even more so for independent shops. Adam Bernstein looks at processing costs and the impact they have

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The ease of card payments, especially the rise of contactless, has left many people wondering if cash is on its way out.

According to an in-depth survey published by UK Finance in August 2017, 10% of adults aged between 25 and 34 shun cash, relying instead on cards and digital payments for their day-to-day spending.

Most retailers presume that banks, as the acquirer, processes the transaction. They don’t – they resell services offered by others. Santander, for example, sells on behalf of First Data, while Lloyds uses Cardnet. The point is that while the banks are thought of as the experts that own the acquirer services, the reality is much different; it may be possible to get a better deal by going direct. It’s almost impossible to give charges a benchmark as there are so many imponderables, such as risk, market power, and transaction volume and so on. However, there are some options for getting a better deal. The first is obvious. Play hardball and negotiate as long as possible. This is clearly a gamble.

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The next option is to use what is termed an ‘independent sales organisation’ (ISO). Officially licenced and approved by the card processors, these firms resell a provider’s service en masse – they buy a block of ‘service’ and through economy of scale get a better deal that is, in theory, passed on to subscribing retailers.

The advantage here for retailers is that they aren’t buying a cheapened look-a-like product; they’re buying the same thing that the banks are selling.
Even better, because ISOs have the power of many they can, to an extent, insulate their customers from price increases and also help with the application process. There are a number of firms that operate as ISOs such as Handepay, Merchantservicesuk and Payatrader.

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. Online comparison websites such as Cardswitcher and Merchantmachine are helpful: filling in an online form should garner a comparison of the best deals. Merchantmachine has a long, 93-entry, list of the various providers. Some limited pricing data is available to view. Interestingly, no fees are listed for the big players. Visit: for more details.

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For a business wanting to switch, it’s just 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, retailers should remember to benchmark service and price. They should never accept the first offer as prices can vary by 40%.

It’s important to consider not just the headline transaction charges but instead, the overall cost including terminals, authorisation, non-chip and PIN transactions as
well anything else that may be hidden. When a contract comes to its end, it’s
worth asking if the acquirer can better their deal. This works with the likes of the insurers and Sky TV, so it’s something that should be pursued with the acquirer. However, retailers 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 will no longer be able make charges for accepting card payments. This makes it even more important to keep processing costs in check and, it’s precisely because the web has made prices very transparent, that it’s very hard to hide the costs of taking cards.

Interested to find out more? See what the latest digital trends to impact the industry are.

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