Collecting Card Payments at POS
The use of payment cards is growing faster worldwide than any other major payment system. In many developed countries, by value, payment cards are used for the majority of payments at point of sale (POS), but payment cards' share of total transactions is still less than 50% in most countries where cash still dominates. For example, even in the UK 48% of all transactions were by cash in 2014, with over 18 billion cash payments worth around £250 billion (PaymentsUK). This is down, however, from 56% of all transactions in cash in 2010.
Payment cards' share of non-cash transactions is already over 50% in many countries as the following figures from BIS show and debit card usage dominates in most countries.
Payment Cards Share of Non-cash Transactions in 2014
At the end of 2013, there were 8.33 billion credit, debit and prepaid cards in circulation globally (The Nilson Report on Global Cards, 2013).
To Accept Card Payments at POS
To be able to collect payments by card at POS companies need:
- a merchant acquirer to connect and deliver payment card transactions to the payment card schemes for:
- MasterCard and Visa cards: only bank members of the MasterCard or VISA schemes can be merchant acquirers. They either provide the merchant acquiring services themselves or in partnership with a third party processor
- American Express cards: American Express is always the merchant acquirer providing the services themselves or in partnership with local banks/service companies
- Diners Club and JCB cards: the acquirer is always the card scheme working with local banks and service companies.
- a supplier of POS terminals - the merchant acquiring bank or a third party - to provide and support the terminals.
Only a small proportion of banks provide merchant acquiring services and an increasing number of these are doing so in partnership with third party processors. Merchant acquiring is moving from single to multi-country services to meet the needs of international merchants and achieve further economies of scale.
Merchant Acquiring Charges
Merchant acquirers make three types of charge - set-up/monthly fees, transaction charges and other charges.
Set-up and Monthly Charges
The set-up charges vary depending on the work involved.
The monthly fees are typically per terminal or location and vary widely, an SME can expect some £20/per terminal, while for large retailers who operate their own terminals there is often no monthly terminal. There can also be other monthly charges.
Merchant Service Charge
The Merchant Service Charge (MSC), the charge that merchant acquirers make, is typically made up of two parts - the merchant transaction processing charge and the interchange - by far the largest part and which is paid to the card issuer via the payment scheme, see figure.
Components of Payment Card Merchant Service Charge
Source: J&W Associates Copyright© 2011
The level of the interchange fee is under investigation by regulatory authorities worldwide and retailer groups are campaigning to have it reduced. However the interchange fee is fundamental to the global success of payment cards and is being defended by the card schemes, but it is falling although less than retailers hope.
There are three main types of payment card:
- debit cards: payments are made from an existing balance (or overdraft) in an account, such as a current or a deposit account, 'immediately' and separately for each transaction. Mainly issued by Financial Institutions. The payment is cleared in local clearing cycle time
- credit cards: deferrred payment card in which debits are accumulated in a central account to the end of the accounting period (usually a month) when some or all of the total balance is paid off by the account holder
- charge cards: deferrred payment card in which debits are accumulated in a central account to the end of the accounting period (usually a month) when all of the total balance is paid off by the account holder.
MSC varies by type of card and whether the POS is over the shop counter or online..
Other Charges
These may include - charges for extra currencies, chargeback processing, and settlement charges. These additional other charges vary widely depending on type and scale of business.
Collecting Payment Card Payments Over Shop Counter
Generally debit cards now dominate payments over the shop counter.
MSC rates at POS vary depending upon the number and average transaction value (ATV) of the payments. Typical charges are:
- debit cards SME Large Retailers
- transaction charges 39p
- ad valorum when outside local market (%) charged as Visa credit
- credit cards:
- personal 2.7%
- commercial 3.5%
- charge cards: 3.3%
- ouside EU then a further 0.8% is added.
Prepaid cards are charged as debit cards.
There may also be a charge per transaction for fraud detection.
Critical aspects of collecting card payments over shop counter are - speed of the transaction, etc.
Collecting Card Payments Over Internet/On Mobile Phone
Debit and credit/charge cards are used to make payments over the Internet.
Online card charges are slightly higher than charges for payments over shop counter because of the greater fraud risk. Charges vary widely between SME and large retailers, typical charges are:
- debit cards SME Large Retailers
- transaction charges 39p
- ad valorum (%)
- credit cards:
- personal 2.7%
- commercial 3.5%
- charge cards: 3.3%
There may also be a charge per transaction for fraud detection.