Types of Card
Credit and debit cards are the two main card types a merchant is likely to accept and these are, traditionally, priced in two different ways:
- Credit cards are priced on a percentage of the total value or ad valorem basis. This is a % of the value of the card transaction.
- Debit cards are priced on a per transaction basis. This is usually expressed as pence per transaction.
Incorporated in the pricing will be the interchange fee that the acquiring bank pays the issuer for each processed transaction. Further details can be found on the MasterCard website 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 and PIN or internet card not present transaction.
To negotiate the correct pricing for its card acceptance service, an acquiring bank 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 acquiring bank will want to know:
- Which card type – debit or credit and MasterCard or Visa. For example a debit card could be MAESTRO 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 a merchant does not currently accept cards, to forecast their card volumes may be difficult at this stage. An acquiring bank will have an understanding from its 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 a merchant to forecast their card volumes.
With an understanding of a merchant’s business and details of the projected card mix, values and volumes an acquiring bank will be in a position to negotiate a 'merchant service charge' with their merchant.
If a merchant is just starting up in business or only expects to take a small number of transactions, they can ask their acquiring bank if they have any specific pricing packages for a smaller business.
To accept American Express and Diners Club a merchant will need a separate card processing agreement with these organisations. An acquiring bank will be able to discuss these card types and advise on how to take forward an application.
