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The pandemic has had a profound impact on consumer spending habits and how we choose to pay for the purchases we make. At Barclaycard Payments, 50% of our transactions now come through ecomm, up from 40% 12 months ago. Even when consumers are able make purchases in-store, they rarely use cash. In fact, contactless purchases now account for 88.6 per cent of all eligible card transactions*.
With fewer cash payments taking place in stores and the growth of e-commerce, many retailers have had to adopt new payments technologies to meet changing consumer needs, often at a rapid pace.
The speed with which these online payments services have been deployed may help to explain why, for many businesses, the costs involved remain confusing. According to Barclaycard Payments’ recent white paper on the topic, less than a half (48%) of businesses understand e-commerce transaction costs and only one in three (35%) understand how the overall transaction costs break down.
It can be a complex area but, when choosing a type of payment your business will accept, cost should be a key consideration – not least because fees vary between different payments services and can make a big difference to a business’ margins. We spoke to David Jeffrey, Director of Product at Barclaycard Payments, about some of the main questions on this topic.
So what are the different costs merchants should take into consideration?
The cost of taking payments online depends on several factors, including: the volume of transactions, the kinds of transactions your business will be processing, gateway fees, and the fees the payment processing company (acquirer) charges.
The fees and considerations generally come under the following categories:
A set-up fee is often a flat, one-time fee charged by the business’ payments processing company (or acquirer) to cover the costs of setting up a new merchant account. However, it is worth noting that not all providers charge this, so it is worth checking first.
A payment ‘gateway’ is a piece of software that sits behind your business’ online shop. The gateway handles the online transaction, and then securely sends your customer’s payment information to your payment processing company.
Gateway fees vary. For example, they can be a fixed, monthly fee plus a per-transaction fee, which might be fixed or variable. The length and type of your contract with your gateway provider can also vary. Make sure you factor in costs and contract length when choosing a supplier.
Once your sale has passed through your payment gateway, it needs to pass through a payment processing company in order for you to get paid. The fees for this are dependent on the payment system being used.
Your payment processing company or payment system acts as messenger between you, your customer, your customer’s payment network (e.g. Visa or Paypal), and your customer’s bank (e.g. Barclays).
For the card payment system, including the likes of Apple Pay, the fees will cover scheme fees plus a fee for the acquirer, which may be a small percentage of the transaction value. For PayPal, there will be likely be one overall fee charged by the payment system. This fee can vary greatly between different payment methods, so it’s worth doing your homework, though in general a larger merchant is likely to pay less for a card transaction than for a similar non-card transaction.
Of course, cost is not the only consideration. If customers really want to use a higher cost payment method, it may be worth accepting this demand, and the higher fee, than losing the sale. Knowing how your customers want to spend their money with you is key to making this decision.
Other costs involved may include fees for things like disputed cardholder transactions (also known as a chargeback), security fees, or early cancellation fees and services such as extra fraud checks.
Questions merchants should ask themselves when considering different payment options
With all the above in mind, there are three simple questions merchants should ask themselves to ensure they are choosing the most cost-effective payments set-up:
What is the overall volume of online transactions I’m likely to process?
This will impact the transaction fees you will be charged, and the rates you can get as part of your contract. Higher volumes of transactions could mean cheaper rates.
What are my customers’ preferred methods of payment?
It’s important to know how your customers like to pay. Transaction charges vary depending on the type of payment so it is important to balance cost considerations with offering consumers the streamlined checkout experience they’re looking for.
What fees am I being charged by my gateway and payments processing company?
Ultimately, it’s crucial for merchants to know what fees they will be charged at each stage of the payment acceptance journey, to ensure they’re using the right partners for their business’ needs.
Understanding the different types of fees and how the transaction costs break down will help merchants choose the most cost-effective arrangement for their business. And although payment acceptance fees can be a complex area, it’s one businesses can’t afford to ignore.
* Based on Barclaycard Payments acquiring data. Eligible transactions are defined as face-to-face / in-store transactions made with a credit or debit card, up to the value of the contactless limit – i.e. £30 prior to April 2020, and £45 after April 2020.