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Understanding Merchant Accounts

As the world changes, so too does the nature of business. With the dawn of the internet, online businesses are becoming more and more popular and although there is still an abundance of physical stores in the UK, physical cash is becoming less common. A study shows that Britain is on course to become a cashless nation within this decade1.

As the country seems to be moving away from cash, it is becoming increasingly beneficial for businesses to start accepting card payments. To do so you will need to have set up a Merchant Account. This is a type of bank account that lets your business accept secure debit and credit card payments. This can be done, in store, over the phone, or online. Without one of these accounts your business won't be able to process credit or debit card payments and runs the risk of you being left behind in the ever-evolving world of business.

Still not sold? Read on to discover 5 Ways That Card Payments Can Benefit Your Business and a little bit more of an insight into the Merchant Account space.

5 Ways That Card Payments Can Benefit Your Business


1. It Makes Things Easier

Card payments make things much simpler for both you and your customers. On a very basic level, you're no longer having to check the authenticity of the cash and then spending time counting out the change. With a card transaction, type the cost into your terminal and you're good to go. If you have contactless capabilities, even better! This allows for a much smoother transaction time between you and your customers. These types of payment also lower the need for bank visits, to either deposit or change cash, saving you valuable time away from your business.

2. Encourages Higher Spending

How many times have you been out with a budget in mind but then throw it completely out of the window when you see something that you like and justify by saying "just putting it on the card?" Well you're not alone, a 2019 report showed that 85% of consumer payments were spontaneous, totalling £29.7 billion1. By 2024, 50% of all payments are forecasted to come from debit cards whereas 65% of UK adults already currently own a credit card.[1] This just goes to show how taking card payments either in person, online or over the phone, can help boost inflowing cash to your business.

3. Increase Your Customer Size

As mentioned, cash is becoming a thing of the past, and as a result, more and more electronic methods of payments are emerging. Although traditional companies such as Visa and Mastercard are still extremely common, companies such as Google, Apple and Android have their own dedicated payment services that are becoming increasingly popular. It is now even possible to pay directly with your phone on contactless systems, and with 8.5 million people registered with mobile payments , this can increase your customer base massively.

4. Improve Cash Flow

Card payments provide a much more streamlined process than taking cash. Those taken from card payments are much more likely to be settled quickly and the proceeds are deposited into your business bank account within a matter of days. This cuts out all the hassle surrounding cash, bouncing cheques and invoice collection from customers. This can result in a higher rate of efficiency for day to day running of your business.

5. Security

There's always that anxiety of leaving a large sum of money on the premises. No matter how good the venue's security is or how heavy the safe that's housing all the cash is, it still sits there, wondering, "what if"? With card payments, the money is all stored digitally meaning that there is zero percent chance of theft. This also eliminates any possibility of accidental loss or damage to cash reserves, giving you one less thing to worry about at night.

How Do I Take Payments?

In Person

You will require a PDQ machine that will typically be rented from your Merchant Service Provider as part of your Merchant Service Agreement. These can come in numerous forms, be they counter top, wireless or mobile card reader models. This is up to you depending on your business. If you're a restaurant for example, it's probably beneficial to have a mobile reader so that you can take payments from your guests at their table.

Online

These can sometimes be referred to as an Internet Merchant Account or IMA. You'll be familiar with these if you've ever made an online purchase that involves a "check out" option. These are known as "Payment Gateways" and you'll be equipped with one of these, allowing your business to take secure online payments with ease.

Over The Phone

If you're looking at taking payments over the phone you're going to need a dedicated mail order/ telephone order MOTO Merchant Account, with a virtual terminal. The Terminal is a secure webpage that is easily accessed on your end, where you log in, enter the customers card details and you're done. Easy.

The Ins & Outs Of Merchant Accounts

We mentioned that in order to be able to properly and securely process credit and debit card payments, you will need a Merchant Account. Below we will discuss the types of Merchant Accounts that are available to you and dig a little more into how they work.

What Type Of Merchant Account Can I Get?

There are three different types of Merchant Account available, and it's up to you to decide on which one you think is most suitable for your business.

Aggregate Merchant Accounts

An Aggregate Merchant Account is the most common and generally most suitable for smaller businesses. A Payment Facilitator (PF) will act as the middle man between your company and the bank and take cut of the room fee as payment. Similar to an estate agent and how they take commission for facilitating the transaction of a property.

When you sign up your business will be assigned with a unique code depending on the industry you operate in. You are then placed in a pool with similar businesses. This allows for the PF to acquire multiple businesses at once and in turn can negotiate a much lower fee with the banks, saving you money.

Dedicated Merchant Accounts

This is the total opposite of the Aggregate Merchant Account. A Dedicated Merchant Account cuts out the middle man and places you firmly in the driving seat. You are responsible for contacting the acquiring bank and setting everything up, including negotiating fees. This may be the better account for those who are a bit more savvy to the finance world and don't mind that extra work load when it comes to dealing directly with the bank.

High Risk Accounts

High Risk Accounts are for businesses that are, well, high risk and may struggle getting a traditional Merchant Account. There are a few reasons as to why your business may fall into this category. The first is the lifespan of the business. How long have you been operating for and how healthy and consistent has turnover been? Have you or any of your business partners been declared bankrupt?

The sector your business operates in can also flag you as high risk. Gambling, travel and anything that relies on a subscription service to generate revenue will typically fall under this category.

Rates in this field are slightly higher, however there are providers that specialise exclusively in this field which can be found HERE.

How Much Will I Have To Pay?

Ok, so we know that this next bit may be a little bit dull but the team at Commercial Experts really think that you need to understand the intricacies of Merchant Accounts, so that when the time comes to get you set up with one, you know exactly what it is you're looking for and what the costs are going to be.

Fee's will very much vary by provider and your business type, you can compare exact costs by applying HERE. The way Merchant Account fees work however is based on the volume of card transactions processed. The more you take annually, the lower the fees.

Merchant Account Core Charges are often split in to two payment categories. Below we've compiled a nifty little table for you to see what fees may look like and how they are categorised. Make sure to ask your provider about these (and it may be worth taking a note of the contents of the table).

Fee Typical rate Charged
Debit cards 0.3% - 1% Per transaction
Credit cards 1% - 2% Per transaction
Authorisation fee 2p - 4p Per transaction
Card terminal rental £15 - £30 Monthly
Payment gateway £15 - £25 Monthly
Virtual terminal £10 - £20 Monthly
Minimum monthly service charge* £5 - £25 Monthly
Joining fee £50 - £100 One-off
Early contract termination* £50 - £100 One-off
* A minimum charge if your monthly transaction volume doesn't reach a pre agreed threshold

There can of course be some additional background fee's that businesses have to pay if they sign up to a Merchant Account and some charges that may potentially be included within the terms your contract. These are typically made up of the following:

PCI Compliance

The first of these is Payment Card Industry Compliance or PCI Compliance. This is a Legal Requirement that helps to ensure the security of credit card transactions. For a small fee, that will vary depending on provider and can be compared HERE, providers will offer a PCI Compliance Service. Trust us, the hassle of sorting this out yourself isn't worth it and not having it at all can result in a sizeable fine.

Chargeback Fees

These aren't anything to worry about unless you're up to something that perhaps you shouldn't be. This is a fee that protects the consumer. Basically, if the consumer believes that a payment is fraudulent, then they can challenge it. If it turns out that something suspect is going on and the challenge is upheld, the money will be taken from your account and refunded to the consumer. You'll also be charged £15 if this goes ahead.

Interchange Fees

Interchange Fees, like PCI Compliance are mandatory when it comes to Merchant Accounts. These are paid by the merchant's bank to the customers and forms a discount rate, charged by your merchant account provider . Riveting stuff we know.

One thing to note however, is that these are Non-negotiable capped rates, so if you're provider quotes you anything other than 0.2% of the credit card transaction and 0.3% of debit cards, Commercial Expert recommends that you look elsewhere.

How Do I Get A Merchant Account?

Hopefully that's answered most of the questions that you may have regarding Merchant Accounts. Now the last one you may have, is "How do I get one?" The process couldn't be any simpler, all you have to do is click the "Start FREE QUOTE" button and you can start comparing quotes in seconds. This is an absolutely free service and there's no obligation to buy, so click the button, follow the prompts and get comparing now.