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The Ultimate Payment Processing Guide 2021

Payment Processing Guide Featured Image

Introduction

As a business owner, we know making it easy to process card payments for customers is vital to the running and growth of your business.

We also know that, like most other business owners, you don’t have the time to spend hours researching things like payment processing.

That’s why we put together this guide. In it, you’ll quickly learn everything you need to know to decide which payment processing setup is right for your business!

Hotel processing payment for customer

What is Payment Processing?

Simply put, payment processing is the ability to take card payments from your customers electronically. 

It allows you to take a card payment face-to-face with a physical terminal, online with an eCommerce terminal, or over the phone with a virtual terminal.

An acquiring bank

How Does Payment Processing Work?

When a customer pays you using their debit or credit card, there are a few steps involved in that money moving from your customers account into yours.


  1. A message is sent to Visa or Mastercard (depending on the card type) from the terminal to check that the card being used is authentic and helps prevent fraud.

  2. Once the terminal gets an okay back from Visa or Mastercard, this triggers the payment to be taken from the customer’s bank account/credit card. This payment is sent to an acquiring bank. (Note: Acquiring banks are different from high street banks – they only deal with processing card transactions)

  3. That money is then transferred from the acquiring bank into your bank account. This process usually takes between 1-3 business days but it can take longer than this depending on the acquiring bank you use.

How Much Does Payment Processing Cost?

When you take a card payment from your customer, there are a few different ‘levels’ of fees that are included in the rates you pay:

Card Network Charges:

Visa, Mastercard, Amex, etc. have their own set of fees that they charge for processing transactions. These are referred to as “interchange fees” and are the absolute bare minimum that can be charged for processing transactions.

Acquiring Bank Charges:

To make a profit, the acquiring bank adds a small margin on top of the interchange fees above. This covers all of their costs for facilitating your payments.

ISO Charges:

Where payment processing can really become expensive is with the ISO (independent sales organisation) that you work with. An ISO is a company that’s independent of the acquiring bank (hence the name) and handles a lot of the sales and marketing for the bank.

Where ISOs make their money is by taking the fees set by the acquiring bank and bumping them up and adding additional fees on top. In some cases, this can increase the amount you pay by up to 600%.

Something To Keep In Mind, Though

Now, not all companies increase the rates by that much, but it’s not exactly uncommon. That’s why it’s important to not only trust the ISO that you’re working with but to carefully look over the terms of the agreement to make sure that there are no hidden fees.

We go over examples of additional/hidden fees in more detail below.

Can I Cut Out The Middleman?

Now, at this point, you might be thinking, “Why don’t I just work directly with the acquiring bank and cut out the middleman?”.

That’s a good point, but when it comes to merchant services, you’re actually more likely to be charged higher rates working directly with the bank than going through an ISO.

This is because most of the customers the bank gets come from their ISOs. If the banks charged lower rates to customers going direct, they’d essentially be undercutting their main source for bringing in new clients and the whole system wouldn’t work.

So, the most important thing is to be mindful of the ISO you choose to work with. Some can be “out to get you” as they say, but some ISOs are built on honesty and a genuine interest in helping other business owners succeed (+10 points if you can guess which category Wildcard Payments falls into!).

Person explaining payment processing fees

Types of Payment Processing Fees

If you’ve ever looked at a merchant statement, you understand how complicated and confusing they can be.

The reason for this is that each acquirer has its own set of internal codes/names that they use for the various types of charges and some may even break-down or group different types of charges.

Below, we go over some of the main types of payment processing charges, as well as give some examples of what they might look like on your bill.

If you see something on your bill that you aren’t sure about, or if you’d like to see if you’re being over-charged, reach out to us and we’d be happy to help!

Monthly Terminal Rental/Lease

This is the monthly lease/rental price you pay for your card terminal hardware and/or software. Costs vary from £5-£50 per piece of hardware/software depending upon what your business needs.

In some cases, you could be invoiced separately for this on a monthly/quarterly basis.

Transaction Rates

The transactions rates are usually the hardest charges on your statement to understand.

Sometimes, the rates are displayed as percentages, sometimes they’re £ amounts, other times they’re numbers that represent percentages, and the list goes on.

That’s not to mention the dozens of different card types, and the fact that each acquirer has their own code for referencing that card type. It can easily become confusing.

In general, though, you can expect each card type to charge a fee of between 0.3% and 2.5% (and sometimes higher). If you’re in a high-risk industry, these fees will typically be higher.

CNP (Card Not Present) Fees:

Sometimes referred to as non-secure transactions, CNP fees are fees charged by some acquiring banks for taking a card payment without the card being present.

This is charged as either a percentage (usually between 0.1%-0.5% on top of the card transaction rate) or as a fixed fee per transaction.

You’ll likely see this fee if you take card payments over the phone or if you have an online store.

PCI-Compliance Fees

Sometimes called PCI-DSS (which stands for Payment Card Industry Data Security Standard) or a Security Fee. This fee is charged to ensure that your customer’s personal card information is kept safe.

For companies that charge PCI-Compliance, you can expect to pay between £5-£20 or higher for this per month. With us, we take care of this for you at no charge.

PCI Non-Compliance Fees

If you aren’t PCI-Compliant, you’ll be charged an additional monthly fee as a penalty. This fee is typically £25/month.

If you pay the above fee (or if your provider includes PCI-Compliance), then you should not be charged a non-compliance fee.

Important: We see merchant statements from companies all the time that have both PCI-Compliance AND PCI Non-Compliance charges on the same bill. If you see both, contact your provider as soon as possible.

Authorisation Fees

These are usually between 1p-5p per transaction; this is the fee charged by Visa and Mastercard to check the authenticity of the card.

VAT

If you’re in business, chances are that you’re probably familiar with Value Added Tax.

One important thing to note, though, is that VAT is not charged on transaction rates but may apply to other charges.

Types of Payment Processing Terminals

Fixed payment processing terminal

Fixed Terminals (‘static’ or ‘countertop’)

These terminals plug directly into your router or phone line. They are used right next to the till and can be displayed on a stand to make it visible to customers that you accept card payments.

Portable Terminal processing payment

Portable Terminals (Wi-Fi)

As the name states, this terminal can be moved around within your Wi-Fi signal to enable you to take the terminal to your customers in order to accept payment. They are most commonly found in cafés, bars, and restaurants, or anywhere where table service is offered.

Mobile terminal processing payment

Mobile Terminals (GPRS)

These terminals allow you to take payments wherever there is a mobile phone signal. They are used by businesses who need to travel to their customers or who sell at different venues.

Woman wearing headset taking phone payment

Virtual Terminals

A virtual terminal allows you to take card payments over the phone through an online portal that allows you to input the customer’s card details manually. This is used when a business may not have a need for a physical terminal or in call centres where several payments would be taken simultaneously.

Tablet displaying e-commerce payment terminal

E-commerce Terminals

This set-up allows customers to purchase products directly from your eCommerce website. From your checkout page, the customer enters in their billing information and the card transaction is processed as soon as they hit ‘buy’.

With some providers, your customers may be re-directed to a different website to complete payment.

Female small business owner in shop

How To Choose The Right Payment Processing Facility For You

Deciding What Your Business Needs

When deciding what kind of payment facility your business needs, it’s important to think about how your customers would like to pay you. It’s absolutely key to make it as easy as possible for them.

It makes sense, right? If you run a brick and mortar retail store with no website, you likely wouldn’t want an eCommerce terminal, for instance.

That’s a very simplified example, but the idea is that you need to think about what your business does and how you can make it easier for your customers to pay you. Most payment processing companies will offer professional advice tailored to your specific situation, so just ask if you’re unsure!

Points To Consider

Do You Take Payments Over The Phone?

You can take card payments over the phone via a physical terminal, however, acquiring banks charge a much higher transaction rate for this facility as the transaction is classed as ‘non-secure’. 

What this means is that the customer is ‘not present’ and does not have the option to instantly receive a receipt for the transaction.

If you only accept a few small payments over the phone each month, this is no problem. However, if you are transacting a large number of payments over the phone, it is more cost-effective to have a virtual terminal to handle these transactions. 

There is usually a low monthly rental fee to pay for your virtual terminal, however, you avoid paying the ‘non-secure’ fee as the customer receives an email with their receipt directly from the payment processor.

How’s Your Wi-Fi Connection?

If you need a portable terminal for your business but don’t have a stable Wi-Fi connection, opt for a mobile GPRS terminal. 

If your Wi-Fi connection goes down, so does your ability to take payment from your customers! A GPRS terminal will process the payment a little more slowly (a few seconds), however as long as there is a mobile phone reception you will always be able to take payments through your terminal.

Virtual or Static?

Whilst a virtual terminal offers a lower monthly rental cost compared to a physical terminal, it is not compliant for a company to take a face-to-face payment via a virtual terminal.

This can result in your merchant account being closed and may even prevent you from taking payments in the future!

If you take payments from your customers face-to-face, you must ONLY do this via a physical terminal. Virtual terminals are solely for taking payments over the phone and via mail order.

FAQs

What is payment processing?

Payment processing is the act of taking a payment from someone electronically using a terminal. This can be done either face-to-face, over the phone or online.

How does payment processing work?

To process card payments, you must use an acquiring bank to handle the transactions. First, the customer’s payment is approved by their bank electronically and the transaction is authorised, then the funds are taken from their bank by the acquiring bank (overseen by Visa and Mastercard) and then transferred into your bank account.

What is a transaction fee?

In order to provide a payment processing facility, acquiring banks and payment providers charge a small percentage of each transaction as a fee. This fee varies depending on the company you work with, the type of card processed, and your industry. The transaction fee is either deducted before the money is settled into your bank account or you will receive a monthly/quarterly bill for your transaction charges.

How long does it take a payment to process?

It usually takes between 1-3 days for processed payments to be settled into your bank. However, this may be longer if your business has special requirements or is in a high-risk category.

Do banks settle payments into your bank on weekends?

Usually, payments are only settled Monday-Friday. This means that any payments taken on a Friday will not be settled into your bank until the following week. If it takes 3 days for you to receive your money from your acquiring bank, Friday’s transactions will not be settled until the following Wednesday. If you are on next-day payments, your money will reach you on the following Monday.

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