Friday, 20 July 2012

Part 2 – Choosing the right merchant account for you

Following on from last week’s blog post on shopping carts, the next vital component to accepting payments online is choosing a merchant account.

Currently in the industry, to accept payments online you will need to get a merchant account from a merchant acquiring provider.  There are seven of these in the UK and they are usually banks, however there are a few non banking providers such as CashFlows and Elavon who offer the same service. A number of payment gateways can also source a merchant account directly.

Essentially the merchant acquirer acts as a go to between you and your customer’s issuing bank to authorise and verify each transaction and collect the funds from the cardholder, including paying any fees to the issuer. They also act as an intermediary if there are any card disputes or refunds.


It is important to keep in mind the following key points when you are looking for your merchant account:
  • What is the set up cost of the account and are you tied into a contract for a set period of time? Some acquirers insist on contracts of 36 months but hide this away in the small print.
  • What is the set up time for the account and what information do you need to send in? The fastest providers can set you up in less than a week, whereas some banks can take over a month!
  • What is the cost per transaction charge (sometimes called Merchant Service Charge or MSC)? Make sure you compare this against at least another two providers.
  • Do you get any other services integrated into the merchant account such as e-invoicing or a virtual terminal etc?
  • What gateways can the merchant acquirer plug into and are one of these compatible with the gateway you are using for your site?
All the points I have highlighted vary dramatically from one acquirer to the next so it is essential to shop around in the same way you would your phone contract or electricity bill before you choose to ensure you get the merchant account and provider that suits your business needs.

It is also important to remember that there are a lot of changes happening in the financial services industry, as I am sure you are all well aware of. This shake up will bring about some pretty dramatic changes in the service and products businesses will be offered. This will mean only great things for you as financial service providers will be forced to become more competitive and innovative with their products and services.

It’s worth keeping this in mind when looking at tying yourself into lengthy contracts for a merchant account and other services, as if a more appealing offering comes to the market with a fully integrated account for example, you would want to be able to switch provider easily if it was a better fit for your business.

With all the uncertainty in the industry it is a great time for you to shop around and find the best merchant account and accompanying service for your business. Happy shopping!

Watch this space out for next week’s blog!

Wednesday, 11 July 2012

Understanding the FSA

A while ago I attended a really good workshop run by Neopay at the Prepaid 2012 conference. As regulatory workshops are deemed to be boring, I was quite surprised that this one was not at all. I’d like to share my learning with you all on what you will need to apply for a licence to be an Authorised Electronic Money Issuer (AEMI). This will give you the authorisation you need to become an issuer for prepaid cards.

To give you a bit background on the FSA - as many of you may know, FSA stands for Financial Service Authority. It is the UK Financial Regulator. Since December 2001 it exercises statutory powers given to it by the Financial Services and Markets Act 2000 and the Electronic Money Regulations 2011. It regulates investment firms, banks, insurance agents, mortgage lenders and more.

Bye bye FSA - it is now undergoing a transition. Its responsibilities will be split into two new agencies called the Prudential Regulatory Authority and the Financial Conduct Authority. While the Prudential Regulatory Authority will look after the c1000 largest firms the Financial Conduct Authority will look after all other firms. Until these new bodies come into the swing of things, you should process as normal (keep on reading the article).

The FSA takes a risk based and outcome focused approach, which you should always bear in mind when you are applying for a license with the FSA. What does the FSA want from you? No more than what you should have already in place as a well-run, well-organised and even well-resourced company. Be always a step ahead if you submit papers, ask yourself which questions might arise and try to be always a step ahead of the person who approves your case.

Give an overview of what your company is doing and what type of payment services you are performing. You will also need to provide a business proposition and a 3-5 year plan. You need to demonstrate that you have the skills, knowledge and the experience to execute your plans. For that, it will be crucial that you have enough resources not only people wise but also in capital. Have your financials ready and if you don't have one yet, prepare a company structure diagram. It will help your case officer to understand how your business works.

Make sure you demonstrate how your business will identify, manage, monitor and report any risks your company might be exposed to. Possible risks might be operational, counterparty, liquidity, market, financial crimes and foreign exchange rates. Don't hold back. There is not a single organisation which does not face risks. Show that you have thought of all the potential risks your company is facing and be transparent on how you will deal with them if they occur. Highlight the top risks in your business plan and do not forget to state which categories they fall into. The four main categories are Governance controls, Financial Controls, Internal Controls and Money Laundering Controls.



You might ask yourself now how many people you will need to keep up with all these controls. The answers is "It depends..." but you always include three key people - chief executive, chief financial officer and a money laundering reporting officer (MLRO).

Last but not least few tips on how to increase you success changes:
  • Be ready! Don't submit the application if you do not have at least 80% of your application complete. Incomplete applications can be declined by the FSA and you don't want that happen especially as the FSA will list all declined applicants on their website!
  • Present it! A good presentation is everything.
  • Own it! Take ownership of your application and the application process. Once your application is submitted don't lay back just now.
  • Be quick! If possible return queries from your case officer on the same. It is more likely he will pick it up straight away and the two weeks SLA is undercut.
Good luck with your application!

Wednesday, 4 July 2012

Part 1 – Accepting payments online - where do I start?

As I promised this blog post is going to be one in a series of hopefully useful plunges into the sometimes daunting world of payments and finance!

After deciding you want to start accepting payments online, the mass of information that can be found on this subject can seem quite overwhelming. You are confronted with types of shopping carts, types of accounts, varying rates and lengthy tie-in contracts as a starter.

At the moment, in order to accept payments through your website you have to go to a different supplier for each of the services you need. This means you need to ensure the suppliers you choose give you the maximum services for the minimum cost.

The first things you need to remember when setting out on the online payment journey is to accept payments you will need the following things:
  1. Online shopping cart facility integrated into your website
  2. Merchant account – this is provided by an acquirer for funds from your online payment transactions to be paid into
  3. Business bank account – for funds transferred from your merchant account for you to use when paying suppliers, employees, business fees etc.
You need to shop around when looking for these three key elements as monthly charges and cost per transaction charges will vary from company to company. Some companies can also provide more than one of these elements which will save you valuable money and hassle, so worth looking out for this too. It’s also worth remembering that your high street bank isn’t necessarily the best or most cost effective solution. There are some great alternative providers such as Metro Bank, CashFlows and Virgin Money who provide very competitive services, so do investigate these too when you’re shopping around.

When taking the first step of creating the online shopping cart facility, you can add this while building your website, or as an add on to your existing site. There are many e-commerce providers who have their own shopping cart facility and will also combine web hosting and software packages for you. In many cases you get what you pay for, so ensure you research exactly the kind of facilities and features you want on your site before committing.

You may also need to use an external design and development company if you have really complex technical requirements so they can ensure they are integrated into the website with your existing systems. This could be expensive so ensure you shop around and get at least 3 in depth quotes including length of delivery time and precise tasks.

Alternatively you could look at free options to build your shopping site including open source shopping cart software packages such as: Zen Cart, OXID eShop Community Edition, osCommerce, On4, OpenCart and PrestaShop.

As mentioned earlier, there is a whole host of information if you are setting up your website to accept payments. One of the best sites for information on accepting payments from your website and general payment information for me is Business Link.

Watch this space for next week’s blog!