As a business owner, we know making it easy to process 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 learn everything you need to know to decide if payment processing is right for your business!
What is Payment Processing
Simply put, payment processing is the ability to accept card payments from your customers electronically.
It allows you to take a card payment face-to-face with a fixed, mobile, or portable terminal, online with an e-commerce terminal, or over the phone with a virtual terminal.
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.
- 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.
- 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)
- 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 process a payment, there are a couple of ways that you can be charged based on who you’re working with.
Regardless of who you work with, they always use an acquiring bank and your transaction is always authenticated by Visa or Mastercard.
When this bank processes a transaction for you they charge a small fee called a transaction rate. This is a percentage of the total transaction and is usually very low. When Visa/Mastercard authenticates your charge, they also charge a very small fixed fee for this service. This is usually only 1p-5p.
These fees are either taken before the transaction is transferred to your account (this is called a net settlement) or you will receive a monthly/quarterly bill for your transaction fees (this is called a gross settlement).
Watch Out For This, Though
Where payment processing can really become expensive is with the payment processor (the company that you deal with directly)
What almost all payment processors do is take the base charges set by the bank and Visa/Mastercard and bump them up. In some cases, this can increase the amount you pay by up to 600%.
We will go over the fees in much more detail in a later section below.
Types of Payment Processing Fees
Standard Monthly Fees
Every payment processor charges monthly fees. The ONLY fees you should see on your monthly statements are:
Monthly Terminal Rental/Lease
This is the monthly lease price you pay for your terminal hardware and software. Costs vary from £5-£50 per piece of hardware/software depending upon what your business needs.
PCI Compliance Fees
These fees are charged to ensure that your customer’s personal card information is kept safe. You can expect to pay between £6.50-£20 or higher for this.
Faster Payments Fee
A fee is usually charged in order for your payments to be settled into your account within 24 hours rather than the industry standard of 3 days.
These are the fees you pay the acquiring bank and payment processor for providing you with a card payment facility. These can be anything from 0.255% of each transaction up to 5% per transaction depending upon your bank/supplier/business.
Standard VAT charge. Note: VAT is not charged on transaction rates.
These are usually between 1p-5p per transaction; this is the fee charged by Visa and Mastercard to check the authenticity of the card.
These are usually between 6p-15p per transaction; this is a necessary fee charged by your payment processor to facilitate an online payment or telephone payment.
Online Portal/Analytics Fee
This is a necessary fee for you to be able to view your transactions online and is a compulsory charge.
The bottom line is – there shouldn’t be any. If you are being charged upfront fees (and your business is not a high-risk business which requires any sort of special set-up), this is a red flag.
Payment Processing Hidden/Additional Fees
Hidden fees come in various guises – below are some examples we have come across. If you see any of these on your monthly statement, you’re being overcharged:
‘Minimum Monthly Service Charge’
Some companies set their monthly transaction fee at a certain figure. If you take enough card payments so that your bill comes to this figure or above, you won’t notice a difference. However, if you don’t take enough card payments in a month and their minimum monthly fee isn’t covered, they will charge you the difference.
‘Management Fee/Administration Fee’
This is a generic fee to increase profits.
How To Avoid Hidden Fees
- Before you sign up to your card payment processor, ask them about all of the above fees and whether or not they charge them. The contract should either show these fees as ‘waived’ or not show them at all.
- If you see any of these on your current statements, call your current provider. You will have (most likely unknowingly) signed a contract to state you are happy to pay these, however, some providers MAY offer a rebate or offer to waive some of these charges going forward. Please remember that it is not against the law for companies to charge these fees, however it is unethical.
- If you are unable to reduce the cost of your bill using this method, many other providers will offer to either buy you out of your current contract or contribute to settling your current contract if it is financially viable for them and financially beneficial for you.
- Simply stop using your terminals. It is sometimes far more cost-effective to simply turn off your current terminal, continue to pay the rest of the terminal rental until the contract is up (remember you’re not paying the transaction or hidden fees), and sign up to a new contract with a more cost-effective provider who you trust.
Types of Payment Processing Terminals
Fixed Terminals (sometimes called ‘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 Terminals (sometimes called ‘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 Terminals (sometimes called ‘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.
A virtual terminal allows you to take payments over the phone via 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 as this set-up allows for multiple logins.
This set-up allows customers to purchase products directly from your website. Once they click ‘buy’, they are directed to a secure payment page where they can input their own card details. This can also be integrated into your website so that customers need not be redirected, rather the payment is taken directly from your site.
How To Choose The Right Payment Processing Facility For You
Deciding What Facility 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 e-commerce 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’ (you may have seen this on one of your card processing statements).
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.
Every business who takes card payments must pay a PCI-Compliance fee. PCI-DSS is the regulating body for compliance within the card payment industry and ensuring you are PCI compliant is absolutely vital in protecting your business and protecting your customer’s personal card details.
If you are not PCI compliant, you will be charged a monthly fine of anywhere between £15-£50.
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.