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PaypointTaking Payments

To get the most sales from customers you want the least barriers. Your payment options are a big part of this. Cash and cheques are fine for really committed customers or customers who are actually present, but unless you also take debit and credit cards, online booking and no-card online booking you're missing out on a huge chunk of customers:

  • impulse buyers - you need to catch these at the point they make the decision as they may not get round to sending a cheque and can easily talk themselves out of the purchase (and into a different one where they can pay immediately) given enough time.
  • convenience buyers - they don't want the hassle of sending cheques or carrying cash. They just want to pay on plastic, now.
  • credit buyers - they may need to buy on credit card to spread the cost or defer payment until the bill comes in. If they can't pay by credit card they may not be able to afford the purchase.
  • online payment averse buyers - according to research commissioned by Alliance and Leicester there are about 5 million buyers in the UK who don't have a bank account or credit/debit card. Added to these are the reported 18% in a recent poll that won't buy online because of the risk. Finding ways for these customers to buy - eg Alliance and Leicester's Pay Offline, where the user pays cash at a Paypoint for their online purchases - has become a hot topic in recent months.

 

Payment options

So what are your payment-taking options?

 

Cash

Cash is still a popular way to pay at many types of business. For many smaller attractions, food and drink establishments and smaller shops, cash is still the main way to pay. It is far less of a feature in accommodation businesses (especially self-catering) and bigger attractions, food and drink establishments, shops, activity centres and tour guides.

Cons - most business bank accounts charge for cash handling, ie they charge when you pay cash in, anywhere between 30p per £100 and 2% - the latter charge starting to compare to credit card fees. However there are also 'hidden' costs with cash: you have to have a method for securely taking and storing cash, you have to count it and you have to transport it to the bank.

 

Cheques

Whilst it is becoming quite commonplace to see signs along the lines of, "As from xxx we will no longer be accepting cheques," they are actually still a popular way to pay, and essential if you don't take cards for both distance and customer present purchases.

Cons - there a number of drawbacks with cheques:

  • They're slow. If the customer pays at the time of purchase with a cheque, you still have to get it to the bank and wait for it to (hopefully) clear before you actually get their money. This is an absolute minimum of three days, assuming you rush to the bank the same day you get the cheque, the clearing system is cranking at top speed and it's a Monday or Tuesday. Much more likely is that it will be between five and ten days, depending on how long you hold the cheque, how close it is to the weekend and where you pay it in (some post-offices, branches and paypoints take longer than a main branch).
  • They interfere with distance impulse buying. Some customers will be put off if they can't pay by card, other's who have committed may cool off before they send the cheque and others may just forget...
  • You many not get the money. A cheque covered by a cheque guarantee card is as good as cash, but without one you won't know, until the cheque tries to clear, whether you will actually get payment. And if the cheque doesn't clear, you'll get additionally charged.
  • The charges. Your bank will charge you for each cheque you pay in (between 30p and 80p). They'll charge you for sending back cheques with your statement (additional 20p - 50p). They'll charge you for bounced cheques (from £7 upwards).

 

Direct Bank Payments (BACS, Direct Debit, Standing Orders etc)

Direct Debits and Standing Orders don't really apply to most tourism businesses because even with regular, recurring customers, you don't get regular, recurring payments. However, with internet banking being so popular, allowing the customer to pay directly into your bank account is a good idea. You simply supply them with your bank details and they make the payment directly from their own account. Quicker than a cheque, it is also perceived as safer than paying online with a credit card by some customers.

Cons - you have to give out your bank account details, though this isn't much of a drawback since you do this every time you write a cheque. Some banks charge for automated payments (between 30p and 80p is normal), for others it is free.

The other drawback is, like cheques, it provides a cooling off period for the customer and a chance to forget.

 

Credit and debit cards

Credit cards (where the payment is made by the credit card provider and later collected, in whole or in instalments, from the card holder - hence the 'credit') and debit cards (where the payment is directly made from the card holder's account - hence the 'debit') are an extremely popular way to pay for both in-person and distance purchases.

There are lots of pros for the customer:

  • No need to carry cash
  • No need to go to the bank first for large purchases
  • No need to write cheques
  • Instant credit for large items that otherwise might not be afforded
  • Easy remote payment
  • 'Painless' for the customer - it is 'harder' to part with cash
  • Easy international transactions

And for the seller:

  • Removes the need to handle and store cash or bank cheques
  • Payment is received faster
  • Makes impulse buying possible
  • Lowers barriers to distance selling
  • Lowers barriers to international selling
  • Improves customers perceptions of professionalism and credibility

The drawbacks are:

  • It's time consuming to set up - as long as eight weeks, and you'll have to provide a lot of financial and trading detail
  • It's costly - here are set up costs and ongoing costs (monthly fees as well as transaction fees)

 

Setting up to take credit and debit cards (a merchant account)

If you want to take cards you'll need a merchant account - the name for the type of account that lets you take credit card payments - and the equipment to actually take the card details. For online or distance payments you'll need an additional account (see below).

Setting up to take credit cards can be an expensive and time consuming process - especially in today's atmosphere of increased awareness of identity theft. Unless you are just taking payments online (see below), you'll need to set up a merchant account through one of the major banks. You don't have to use your existing bank, although many businesses do because they already have a track record and costs can be negotiated.

Setting up a merchant account and the facility to swipe cards involves:

  • applying to the bank for your merchant account - you'll have to provide a lot of financial information about your accounts, turnover etc, as costs are based on the volume of transactions you expect to make. In addition you may be asked to provide details of your trading history, methods of trading, suppliers' details and delivery methods. The application process can take up to 8 weeks.
  • negotiating costs - these vary from bank to bank and if you are already a customer with the bank you should certainly try to negotiate a better rate or lower set up charge.
  • deciding which cards to take - your acquiring bank (the one that provides the merchant account for you) will have agreements with some, but not all, card providers. If you want to accept American Express, for example, you may need to enter an agreement with them separately.
  • renting a PDQ (the swipe terminal) or obtaining a till or EPOS (electronic point of sale) with swipe capabilities.
  • obtaining a second phone line for your PDQ terminal (it uses the phone connection to check the data from the credit card and authorise the payment).
  • setting up the equipment, familiarising yourself with the regulations and training your staff on its use.

There are a lot of costs:

  • a set-up charge
  • a bond or a retainer (against chargebacks - fees for refunds or fraudulent purchases)
  • a monthly charge for the merchant service
  • rental of the PDQ or EPOS
  • cost of the second phone line
  • chargebacks - these fees, for refunds and fraudulent card use can be quite hefty, and vary between providers
  • and of course, per transaction charges - between 1.5% and 3.5% for credit card purchases and often a fixed charge of less than £1 (often 30p - 45p) for debit card purchases

However, although the costs and the process look daunting, hundreds of thousands of small businesses successfully set up with a merchant account because the benefits outweigh the difficulties.

If you'd like to know more about setting up a merchant account you can:

 

Taking payments online and by mail order

For nearly all businesses (except possibly food and drink businesses) it is essential for customers to be able to buy and pay online. But finding the right service provider can be difficult.

 

Desti.ne

In the North East we are very fortunate to have desti.ne, the regional e-business system specifically for tourism businesses put into place by One NorthEast, the regional development agency. This flexible, tailored system not only makes it possible to promote your business to a wide variety of online channels and take online bookings at these and at your own website, but the payment methods are fully integrated. What's more, costs for set up of the system are highly subsidised through One NorthEast (subject to availability) and ongoing commission and card payment charges are very competitive.

Online payment options are therefore:

  • Desti.ne - see the desti.ne pages for more information
  • Online Merchant Account - this is like your Merchant Account for taking credit/debit cards in person, but online, and is a fairly 'heavy' solution. Online Merchant Accounts are provided by the major high street banks - so you should talk to your own bank if you are interested in this option. Because the customer isn't present, there is perceived to be an increase risk of fraud. So the checks involved in granting you an Online Merchant Account are quite stringent - and can take as long as eight weeks. It can be hard for a new business, or one that doesn't already take credit cards, to get an Online Merchant Account.

    There are also set up fees and monthly charges, as well as ongoing transaction charges.

    In addition, you still need a Payment Service Provider (in the same way that you have to rent a PDQ when you have a regular Merchant Account) to actually provide the technology for taking the payments online and passing the request to your bank for processing. This entails additional costs, although some banks offer a combined package. Typical providers are Alliance and Leicester, Barclays, HSBC and Nat West
  • Payment Service Provider - these organisations actually provide the technology to take the payment online and pass it to the banks for 'clearing'. However, many PSPs also provide Online Merchant Accounts thereby becoming a one-stop shop provider. You don't actually get your own Online Merchant Account, but instead get to 'share' the PSP's. This is seamless to the customer - the payment pages can be branded and coloured to look like your site - but reduces cost and burden to you. This service is faster to set up and often involves lower overall fees, though the per transaction charges can be higher. Examples are WorldPay, PayPal Website Payments Pro Service, NoChex, Google Checkout.
  • Payment Bureau - this is where you use a bureau to actually conduct the transaction, just as when you use PayPal to buy something from ebay. The buyer agrees to purchase on your site, then clicks the 'Pay now' button. This transfers the buyer to the Bureau's site. The buyer pays the bureau - and is then returned to your site - and the bureau pays you. However, there is usually some delay before you actually receive the money - 7-30 days is common - and the purchaser may have to sign up for an account in order to complete the purchase. Bureau services are usually very quick to set up, have no set-up or monthly charges and fairly low transaction charges. Added fraud protection and reduced chargeback fees can be an advantage. Some customers prefer them because the seller never sees their card details. The disadvantages are that you have to wait longer for your money and it's a less professional service because you clearly don't have your 'own' payment processes.
  • ePDQs - these are 'virtual' PDQ machines. They don't allow you take real-time online payments at your website, but they do allow you to take bookings and orders over the phone, by email or by fax. Then, using your web browser, you type in the card and account holder details, which are then authorised in the same way as swiping through a real PDQ. You cannot take bookings in person, you need a real PDQ for that. Charges vary and are in addition to your Merchant Account or equivalent charges.
  • Offline payment - very recently, a new way of paying online has sprung up. This allows the user to agree to buy online, but pay offline using a card or cash. When the purchaser agrees to buy, he enters into a transaction and prints a bar-coded receipt. He then takes this receipt along to any PayPoint (there are 17,000 across the UK), the barcode is scanned and the customer pays. Alliance & Leicester launched a major product last September in this field, called Pay Offline.

For details of all the different UK online payment providers, and a free comparison tool to compare costs between them, visit http://www.electronic-payments.co.uk/product_data.jsp .

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