Credit and debit cards are the two main card types a merchant is likely to accept and these are, traditionally, priced in two ways. This pricing is known as an interchange fee:
- Credit cards are priced on a percentage of the total value. This is a percentage of the value of the card transaction.
- Debit cards are priced on a per transaction basis. This is usually expressed as pence per transaction.
The interchange fee will be incorporated into the pricing, which the acquirer pays the issuer for each processed transaction. Further details can be found on the American Express, MasterCard and Visa website.
This explanation on pricing provides a simplistic way to understand the merchant service charge for card transactions. Each card scheme will have a different level of interchange for each of their card types e.g. Visa Debit and MasterCard’s Maestro and the type of transaction being processed e.g. a chip & PIN or internet (card-not-present) transaction.
What will the acquirer want to know?
To negotiate the correct pricing for its card acceptance service, an acquirer will want to know at least the following aspects about a merchant’s business:
- Which industry a merchant is operating in.
- Where a merchant’s shop is going to be sited.
- What type of goods or services a merchant is selling.
- If there are any guarantees attached to the goods or services.
- What will the merchant’s actual or forecast card volumes be.
When discussing the mix of card volumes, an acquirer will want to know:
- Which card type – debit or credit and MasterCard or Visa? For example, a debit card could be Visa Debit or Visa Electron
- How many debit and credit card transactions there will be
- Whether a transaction will be processed as card present or card-not-present.
- The average value for each card transaction – known as the ATV or average ticket value.
- How the transaction is going to be processed. For example, with a card-not-present transaction which is processed using both Address Verification Service (AVS) and Card Security Code (CSC) this may influence the price for that type of transaction.
If merchants do not currently accept cards, to forecast their card volumes may be difficult at this stage. An acquirer will have an understanding from their own experience of how different businesses by industry type, e.g. hairdressers and size of business by sales turnover are likely to operate and can help merchants to forecast their card volumes.
With an understanding of a merchant’s business and details of the projected card mix, values and volumes an acquirer will be in a position to negotiate a ‘merchant service charge’ with the merchant.
If merchants are just starting up in business or expects to take only a small number of transactions, they can ask their acquirer if it has any specific pricing packages for smaller businesses.
To accept American Express and Diners Club a merchant will need a separate card processing agreement with these organisations. An acquirer will be able to discuss these card types and advise on how to take forward an application.
In the UK, the majority of cards issued to UK cardholders incorporate chip & PIN security. However, other parts of the world do not use chip & PIN, and issue cards with a magnetic stripe only, a chip or a combination of both. These can still be processed, and your acquirer will advise how to process these types of transactions.
The card types listed below can, generally, be processed as either a card present or card-not-present transaction. However, special card processing rules for certain card types have been set by the card scheme brands.
A credit card provides the customer with revolving credit that can be used to pay for goods. The card’s issuer keeps a running total of how much has been spent, against the pre-set limit allocated on the credit card account.
The amount of money outstanding on the card account may be settled in full by a set date or may be repaid over a period of time, subject to minimum monthly repayments being made. Interest will normally be charged on the outstanding balance.
In the UK, the vast majority of credit cards are, issued by MasterCard and Visa and will show a ‘start’ or ‘valid from’ date and an ‘end’ or ‘expiry date’ on the front of the card, along with the card security code on the reverse in the signature line. Although less frequently seen in the UK, certain UK acquirer also accept American Express and JCB cards.
Customers can use their credit cards to spend up to the limit agreed with their card issuer.
A debit card is linked to the cardholder’s bank or building society account and can be used to pay for goods and withdraw cash from an ATM. Cardholders can spend up to the value of funds in their bank account and any available overdraft.
There are card scheme brands offering debit card products to the UK market. Some have different product features driven by the specific card type. When a debit card transaction is processed, the amount is charged against the available funds in the customer's relevant bank account.
These are cards that have been issued by non-UK card issuers. These may carry recognised scheme branding (such as MasterCard or Visa) and may be accepted by the terminal.
Not all countries have signed up for chip & PIN and some cards may still use magnetic stripe technology and require the cardholder to sign a receipt - just as in the UK before the introduction of chip & PIN. In these cases, a merchant will have to swipe the card through the terminal using the magnetic stripe that is on the reverse of the card and follow the instructions from the terminal.
Other card types may be presented for payment at a UK merchant and these include the following:
Business card or corporate card
Business cards are primarily used by businesses as a business payment method; available as a debit, charge or credit card. A feature of the card is being able to provide management information to help control expenditure and to manage and develop expenses policies.
Fleet of fuel card
Fuel or fleet cards are sector specific cards that can be used to buy automotive related items. Typically these are issued to a company’s sales representatives or transport distribution drivers. The company can access management information on fuel purchases made by their employees.
Typically, this operates like a pre-paid card that can be given as a gift and allows the recipient to purchase items up to the gift value. The card may be restricted to certain retailers or, in some cases, can be used more widely. These can be re-loadable.
Much like a gift card, prepaid cards are stored-value cards used to pay for goods and services, mainly as an alternative to cash. The card can be disposable or re-loadable. The stored value is reduced as purchases are made.
Primarily, large businesses, Government departments and other public sector bodies use purchasing cards. These cards allow companies to monitor and control expenditure and provide information to help improve cost efficiency and reclaim VAT.
Merchants should speak to their acquirer about the different levels of information that can be generated for purchasing card transactions. For example, when they need to send a VAT invoice to the cardholder’s company.
Store cards are mostly issued by major high street stores and are either a charge card or can function as a credit card. These may be supported by one of the card schemes (e.g. MasterCard or Visa).
Store cards may only be used in designated shops which, typically, are part of the same group or chain of shops and this is know as a “closed loop” card. Alternatively, the store card, when supported by a card scheme, can be used in any shop that is displaying that card scheme’s logo and this is known as “open loop”.