How To Guide : UK Merchant Accounts

[PayVector]

LAST UPDATED : 26/03/2014

Fixed some formatting and other errors - 26/03/2014
Added the website compliance check list guide - 26/03/2014

How To Guide : UK Merchant Accounts

1.0 Introduction There seems to be a lack of information available to businesses either starting trading or currently trading to help inform you Merchants as to what a Internet Merchant Account is, what you need to do to get one, common pitfalls, and the reason why you would want one in the first place.

So what qualifies me to write such a guide. I work for a company that provides a payment gateway. I have helped literally thousands of Merchants of all shapes and sizes, from every industry you can think of.

Being that I do work for a company that provides an internet payment gateway service I will try to keep my comments unbiased. Please do not ask questions about what I think of other similar services or PM me.

2.0 What is a Merchant Account

People sometimes confuse Merchant Accounts with Bank Accounts. They are two totally separate things. A bank account is where your business funds are stored. A Merchant Account is a credit account arranged between the Merchant and an Credit Card Acquiring Bank. Before you can get a Merchant Account you will need to go through a credit process with the Acquiring Bank in order to assess your suitability. It is analogous to when you apply for a credit card. The card issuer will do a credit risk process on you to see if you qualify. The same happens when you want to take credit/debit card payments. The Acquirer will take you through a credit risk assessment process.

The credit process is what most people trip up on regardless of whether they are a suitable candidate or not. This guide will hopefully help you through the process.

There are three basic kinds of Merchant Accounts with the differentiation being who is present at the point of transaction. The three types are:

2.1 Card Holder Present (CP) - This can be thought of as traditional retail where both the Merchant and the card holder are present at the point of sale. For example using your card in a shop is a card holder present transaction.

2.2 Mail Order/Telephone Order (MOTO) - MOTO accounts are used when the Merchant accepts orders from customers and processes them with the customer not present. This type is sometimes called Card Holder Not Present (CNP). For example someone phones you up to make a payment and you enter the customers card details into a virtual terminal on your computer, tablet or phone.

2.3 Internet Merchant Account (IMA) - An IMA is used when the Merchant is either trading from a shop or service on-line or has a need to run automated transactions where neither the Merchant nor the customer necessarily is present at the point of transaction. For example you as a customer signs up for an on-line subscription service on-line. The initial payment you enter your card details yourself into a secure webpage. The merchant then has a automated system to collect future payments.
NOTE: To do repeat transactions you may have to obtain a continual authority account. If you plan to do repeat transactions from an initial transaction speak to your acquiring bank and ask if they require it. Some will issue a separate merchant account. Some will add it as a feature on your existing.

For most companies who wish to trade on-line a simple IMA will do. If you plan to take a significant number of your orders via telephone or other means then you will also need to get a MOTO Merchant Account.

Section Top Tip : IMA accounts are the most expensive of the three types due to the higher risk associated with the accounts. If you are doing more than a couple MOTO style transactions it is in your best interest to get a MOTO account as the rates are usually lower and you will save money.

3.0 Why Do I Need A Merchant Account?

There is one major reason why getting a Merchant Account direct from an Acquiring Bank is beneficial to your company. It puts you in the credit food chain which means the longer you trade the better rates and terms you will get. If you use a Bureau Service like you will have no credit agreement in place direct with the underlying bank. You will not be building your own credit rating by using a Bureau service. What this means is that in a couple years when you decide to move to an acquiring bank you will find all the time trading is for nothing and you will start out on the first step of the credit ladder with the Acquiring Bank.

Section Top Tip : If you are planning on launching a website/service set a firm launch date. Approach an Acquiring Bank the point where your developer has a Beta site up that can be reviewed. There is normally a couple week gap between a site going to beta and a site actually going live. This window is more than enough to get a Merchant Account if you follow this guide.
[SNIP]

 

[PayVector]

4.0 Where do I get a Merchant Account from?

There is a common misconception that you need to get your Merchant Account from the bank your business account is with. This is totally untrue. You can be banked with bank X and have your merchant account with bank y. There is no extra cost, there is no penalty imposed. This means that you can shop around for the most suitable service to your needs. Not all acquiring banks are the same in terms on the service they provide.

Below is a list of UK Acquiring Banks. If I have missed anyone out let me know.

• Valitor
• Allied Irish Bank (AIB)
  
• Elavon
• First Data Merchant Services (formerly Halifax Bank of Scotland)
• Royal Bank of Scotland (RBS) Streamline
• Global Payments (formaly HSBC Merchant Services)
• Barclays Merchant Services (BMS)
• Lloyds Cardnet
• Alliance & Leicester
• Allied Irish Bank (AIB)
• Bank of Ireland
• SEB Private Banking

Premium Card Types

• American Express
• JCB
• Diners Club
• China Union Pay

Section Top Tip : Don't just get a quote from one bank and be happy with it. Get as many as you possibly can. Think of the banks like used car salesmen. They all sing a pretty song but at the end of the day they are after your money. Use the quotes from competing offers against the banks to get lower rates. it may take some time but the results will show on the savings you achieve with every single sale.

5.0 How Long Does It Take To Get A Merchant Account?

The time it takes to get a Merchant Account in the UK is directly relational to the quality of your application. What tends to slow down and can stop some application is Merchants not understanding when an what to do during the application process. This causes the application to be red flagged by the bank which extends the time for the application and or the application fails. You MUST MUST MUST MUST ( <---- Cant stress this enough ) have the following in place before you even pick up a phone to the bank.

• UK Registered Company - Sole Traders can get Merchant accounts but if the business takes off then you will want to go limited for tax and liability reasons. If you then switch to limited your time trading jumps back to zero and you get the pleasure of starting over. For the sake of £40.00 do it now.
• UK Business Bank Account - It always amazes me how many people try to get a Merchant Account and do not have a business bank account in place. This account must be in the company name with a Director of the company named as the account controller.
• Business Plan - If you are a start-up you will be asked for your business plan. As your business plan is a 100% direct reflection of your skills to plan, organise and run a business you should probably spend more than a couple of hours on it. You will fail your application if you can not show a basic ability to plan. There are business mentors out there that will review it. Go to your bank manager to have them read over it. You will need to cover what your turnover you are predicting. Where your consumers will be geographically located, ie will they be UK based, EU based or rest of world.
• Written Business Summary - In no more than one page describe what it is your business will be doing, is doing etc. A concise snapshot that the bank can review. If this is well written you may not be asked to submit a full business plan.
• Management Accounts (P&L) - Regardless of whether you are trading or not you should have current management accounts and a profit & loss projection for the next 6 months minimum. You will be asked to produce them.
• Website - If you are going to be trading from a website you will need that website up for the acquiring bank to review in at least beta format. This is a 100% must. There is no point in even picking up the phone unless you have this in place.
• Terms & Conditions (T&Cs)- Your website has to be card scheme compliant. Therefore you need T&Cs on your site. Best practice is to have a link to them on every page. Your T&Cs must cover sales policy, refund policy, returns policy, privacy policy etc. I suggest picking 5 or so well know sites in your industry and going through there T&Cs. Pick out the pieces that you like and write your own making sure you cover everything that is covered by them. Remember a credit card sale is a credit agreement which the customer is entering into with you. If you breach your T&Cs they have the right to claim there money back AND keep the product so make sure you spend the time and get the details in them right.
• Picture Identification - Seems daft but you would be surprised how many people don't have. You will need a picture driving license or passport. The bank is required to carry what are called Know Your Customer (KYC) checks. Part of these is to check out you are who you say you are.
• Other Paperwork - Depending on how you are going to operate and what you are doing you may be asked to produce any contracts from your suppliers. Make sure your suppliers are actually under contract. You will fail if this is not the case.

Before you pick up the phone to the banks you should have an information pack ready. You will be allocated a bank representative and the easier you can make their life the faster your application will go through.

Section Top Tip : If your a startup you present a higher risk to the banks. This is not a show stopper as some people think. Spend some time on the bits and pieces above and you can actually look to be a decent proposal for a merchant account. It will also get your head into details of how you are actually going to trade and thereby avoid common pitfalls & mistakes new Merchants Make.

 

[PayVector]

6. Website Check List

The following is an example of a website check list a bank might use to ensure that your website is compliant with Payment Card Industry (PCI) standards. Full merchant PCI compliance will be discussed later in this guide.

• The transaction currency does appear on the website and/or during the checkout process. The website does not redirect - The website supplied on the application must be the website that will be used. A redirected website is one where on landing on the website the visitor is bounced to another website. This is not allowed. You will need to supply the website URL to be vetted.
  
• Information on Customer support is easily identifiable on the website - Your customers must be able to find information on how You the Merchant will support them before, during, and after they purchase from You.
  
• Customer Service Telephone Number - Customers must be able to find your Customer service telephone number easily. Best practice is to have this number listed on as many pages as possible.
  
• Customer Service e-mail address is listed on the website - Your Customer service e-mail address must be listed on your site and easily identifiable. Best practice is to have this on as many pages as possible.
  
• Website Branding is as expected - If your application is for a website selling shoes for example and the branding indicates you are selling furniture then it is misleading. The branding of the website must fit with type of merchant account being applied for.
  
• European Corporate Address - The registered address and support/trading address must be listed on the website, usually the ‘Contact Us’ page. The address must be within an EU Country.
  
• The Card Holder is diverted to a secure site (HTTPS://) for the purchase process -The information that You are requesting from You Customers as part of the purchase process is considered sensitive and must be collected under an encrypted page.
  
• The website displays the VISA/MasterCard logos - Card scheme rules state that at any location, including websites, where a Customer can purchase using one of the card schemes that their logo is displayed. Logos can be obtained online from the card schemes.
  
• The Card Holder is asked for address and telephone numbers, both landline and mobile as part of the purchase process - Collecting this type of information is important for fraud detection and prevention. As such it is mandatory.
  
• The website displays prices in full - Customers must be shown pricing in a full and complete manner to avoid any confusion as to what they will actually be paying to complete the transaction.
  
• The transaction currency does appear on the website and/or during the checkout process - Since some currencies have the same symbol You must display the correct the correct ISO 4217 currency code. An example would be : £56.78 GBP.
  
• Terms & Conditions are visible on the site - The Customer must be able to read the terms and conditions for their purchase. Best practice is to have them linked to from the main page as well as part of the checkout process
  
• It is stated on the website when the card holder will be debited - Customers must be told when their card will be debited. For goods that ship immediately the card can be billed immediately. If there is going to be a delay in sending or delivering the item then the card should not be debited until the item is ready to ship.
  
• There is a privacy policy available on the website - A privacy policy is one which describes how Customer details entered as part of the purchase process will be stored and accessed. Details of acceptable privacy policies are available online.
  
• The procedure for how a customer can return goods and/or cancel service must be available on the website - Customer must be able to easily find the procedure to opt out of the purchase and return goods and services. Best practice is have this available in as many places as possible.
  
• The shipping policy & shipping costs - How much your customers will pay for shipping must be readily available on the website. Best practice is to have it linked from the main page as well as part of the checkout process.
  
• The delivery time-frame is stated on the website - How long shipping will take must be readily available on the website. Best practice is to have it linked from the main page as well as part of the checkout process.
  
• The refund policy must be readily available on the website - Customer must easily be able to find the policy and process for obtaining a refund. Best practice is to have this linked from the main page as well as part terms and conditions.
  
• The descriptor must appear on the website - The descriptor is what appears on the merchant statement. To avoid chargebacks the descriptor must be something the customer will associate with the purchase they completed when viewing their statement when it arrives. Best practice is have it listed in your terms and conditions, as part of the checkout process and on the receipt the Customer receives. An example would be : “This purchase will appear on your statement as Jim’s Shoe Store"
  
• The Card Holder’s responsibilities regarding jurisdiction laws is stated on the website - You will need to consult your Attorney to see, if at all this is applicable how this point should be worded on your site.
  
• All links on the website work - The website must be in a functioning state.

If everything listed above is present on your site you should be able to breeze through the compliance checks. If not most of these can be added very easily. If you are unsure about the wording that needs to be their check similar type sites and see what they do. By no means copy word for word but it will give you an idea.

If you would like this as a word document that you can use to track your progress please PM me and I will get a copy to you.

6.0 Summary

I can not stress enough how important it is to get yourself setup correctly to take online payments. There is in the industry what I call the Merchant Migration. New Merchants tend to go down the Bureau service route then in time realise they are paying above the odds and in some cases losing a tonne of business because of the way some Bureau services take payments. I have seen it countless times where a Merchant comes off of them to a standard Merchant Account setup and they see their sales increase immediately. Hopefully this guide will be enough of a starting point that you will be able to get your foot in the door with an Acquirer. For some Merchants Bureau services are the best way but all large online companies have proper Merchant Accounts and there is a very good reason for this being the case.

I will be extending this guide when I have more time. If you find an error in it please PM me. If something is not clear or you want to know something not covered then feel free to comment hear or to PM me.

Good luck to you all!!!!

Sean

 

[PayVector]

Reserved For Future Content

 

[PayVector]

Reserved For Future Content

 

[gibby]

thank you for this info
really helpful & spot on

G

 

[kulture]

Useful, but missing 2 important points I think.

Firstly look in to schemes supported by organisations like The Federation of Small Businesses, or the British Shops and Stores Association. Their deals can be much much better than anything offered initially by a merchant.

Secondly, although you do not need to bank with the aquirer it can help. It can give you more leverage to negotiate, your bank manager can better argue your case when there are problems, you can get your money quicker. The last is especially nice. If a customer pays by card today, the money is in my bank tomorrow.

 

[quikshop]

Excellent post Sean, very informative and well presented.

As mentioned above you can more than halve the introductory commission charges by going through the FSB, and it might have changed in the last few years but when we got our various merchant accounts in the past we've never once been asked to present a business plan or P&L accounts

 

[PayVector]

It depends on the acquiring bank to be honest as well if the Merchant has been trading for anytime. We see it more with HBOS/Cardnet as they use First Datacorp to handle their acquiring and its a funny with them. The point is that it should be prepared just in case. The last thing you want to be is caught short without one and not get an account.

 

[quikshop]

It depends on the acquiring bank to be honest as well if the Merchant has been trading for anytime. We see it more with HBOS/Cardnet as they use First Datacorp to handle their acquiring and its a funny with them. The point is that it should be prepared just in case. The last thing you want to be is caught short without one and not get an account.

I think over the years we've applied for 5 or 6 merchant accounts for various businesses, all new start-ups and never had to produce the business plan or p&l.

You are mostly likely right in that it depends on which aquiring bank you go through, we used Streamline each time because we were able to get beneficial rates through a Royal Bank of Scotland group bank.

The application to completion time has varied from 2 to 6 weeks and that's been purely down to their internal processes - the more vigerously we chased the application the quicker it got sorted.

 

[PayVector]

the more vigerously we chased the application the quicker it got sorted.

That is absolutely correct. We advise people to call constantly and harass the banks.

I dont want to turn this into a sales pitch for Iridium Corporation but I would be interested in hearing some feedback on an about to be released service that one of the UK banks has taken from us.

We spent the last two years or so developing an online IMA application system that is actually tied into the banks back end. All the checks etc that are take up the time are done automatically. A merchant can get a decision within a couple of hours from completing the application, get a contract generated and emailed across same day. This means the Merchants will be able to have a live Merchant account within 3 days of first contact.

As you will agree this will be a first within our industry in the UK.

 

[Christiane]

Thanks for this, great idea, I spent ages trying to explain how this works to someone the other day as they want to set up a website...

 

[SPLASH]

very good post!

 

[HC-Martin]

Great post with lots of info!

Many thanks!

 

[PayVector]

Admins - It seems this thread has become and advertising spam thread. Anything you can do about it?

 

[roger watts]

I'm reaaly having trouble getting a moto account, I want the facility just to collect invoices where customers are asking to pay over the phone. We don't have a web presence and there is nogoods to be despatched. I've tried pay pal worldpay et al and unless we want a web site shopping cart as well they won't help any ideas please.?

 

[Mustaka]

I'm reaaly having trouble getting a moto account, I want the facility just to collect invoices where customers are asking to pay over the phone. We don't have a web presence and there is nogoods to be despatched. I've tried pay pal worldpay et al and unless we want a web site shopping cart as well they won't help any ideas please.?

Roger,

We offer a solution calle "PayByLink". Basically how it works is from within the merchant management system you jey in the details for the invoice. A link is created that is mailed to your customer or that you can mail them. Once they click on the link they are brought to a secure page hosted on our secure systems. This page has all the details for the invoice. They key in their card details and the payment is taken.

Whole idea behind the system is for people like yourselves that need to take payment but may not have a web presence. Or people who want to do adhoc billing over the phone but get the liability shift from 3D secure.

Hope that helps.

 

[PayVector]

Oops - Was logged in on the wrong account.

Mustaka = IridiumCorp

 

[2012]

I think you should update this it was helpful

 

[BenKirkwood]

Oops - Was logged in on the wrong account.

Mustaka = IridiumCorp

Busted! lol

 

[Mustaka]

Busted! lol

LOL Ben. Never been a secret at all. If I post on the Iridiumcorp account I do so as nuetral and trying to help out peps here. However I do enjoy engaging the UKBF community in topics that have nothing to do with my job hence having another account.

This is an old thread but I read through my original post and actually have not much to add to it and it is all still pretty relevant.

What I will be adding to it though is PCI "dos and donts" and why you need to do what you need to do as a merchant regardless of size.

 

[Bill1954]

If you use a Bureau Service like Worldpay, Paypal, Google you have no credit agreement in place direct with the underlying bank. What this means is that in a couple years when you decide to move to an acquiring bank you will find all the time trading is for nothing and you will start out on the first step of the credit ladder with the Acquiring Bank.

This throws up a question. We had our merchant account through Natwest Streamline, this has now been sold to Worldpay, does that our trading history now counts for nothing ?

 

[CharityClear]

This throws up a question. We had our merchant account through Natwest Streamline, this has now been sold to Worldpay, does that our trading history now counts for nothing ?

No. I think the point in the original article was if you were using a bureau service then move on to a merchant account it may not count towards your trading history.

It seems that you already have a merchant account that was bought by a different company. The main point is that it's a merchant account you already have, so you're already on the credit 'food chain'.

 

[Mustaka]

Charity Clear - When this was originally written Worldpay were a predominatly bureau service. Other names are master merchant, merchant of record and some others depending on which global region you are in.

During the banking crises of 2008 RBS was forced to sell Streamline. I am not sure of the actual sell date just that they were mandated to sell off Streamline. They went to a private equity firm who bought in a bunch of names including Cardsave and Worldpay as the two primary UK names people on this forum will recognise and be using.

Bill1954 - If your contract has Streamline written on it then you have a direct credit relationship with the acquirer. Worldpay is just now their owners. In fact that is not technically right. The hedge fund behind them are the owners and they have chosen the name Worldpay as the name which eventually soak up all the companies they bought.

 

[karlcw]

Can't rate the FSB service highly enough (Streamline). I no longer use it but still a fab deal for those that do.

Something that amused me about the FSB though: a few years ago FSB were offering NatWest merchant accounts cheaper than NatWest themselves.

 

[trecords]

Do merchant account allows t charge customer and also allow customer to deposit funds to his/her credit card online ?
I am thinking about paypal like service in local currency with in my country.

 

[PayVector]

LAST UPDATED : 26/03/2014

Fixed some formatting and other errors - 26/03/2014
Added the website compliance check list guide - 26/03/2014

 

[WHARTY]

Hi there. I was unfortunately made bankrupt last year and i am due for discharge in June this year. I want to set up a company (i was a sole trader last time) selling goods online. My question is.. Am i likely to get a merchant account? Getting a bank account i am sure will be difficult but if i did get an account would i pass the credit checks for a merchant account? Would it be possible to have a fellow director who has a clean credit file apply for the account or would my history have an adverse effect on his application? I was also thinking of having a director apply for the Bank and merchant accounts and then adding myself afterwards as a director, would this be frowned upon?? Thanks.

 

[Kay]

Sean, thanks for this useful guide. Do you have it available as a PDF or in some other format? I'd like to share much of this and a link to a document would be more helpful than sending them to scroll through a long forum thread.

I'm also writing a piece about e-commerce and your posts above have been helpful with my research. And now I'll know where to come if I have any questions.

 

[LMDServicesUK]

Hi there. I was unfortunately made bankrupt last year and i am due for discharge in June this year. I want to set up a company (i was a sole trader last time) selling goods online. My question is.. Am i likely to get a merchant account? Getting a bank account i am sure will be difficult but if i did get an account would i pass the credit checks for a merchant account? Would it be possible to have a fellow director who has a clean credit file apply for the account or would my history have an adverse effect on his application? I was also thinking of having a director apply for the Bank and merchant accounts and then adding myself afterwards as a director, would this be frowned upon?? Thanks.

Pls PM me, we might be able to help, but no promises..
Mark

 

[Red Wood]

I think over the years we've applied for 5 or 6 merchant accounts for various businesses, all new start-ups and never had to produce the business plan or p&l.

You are mostly likely right in that it depends on which aquiring bank you go through, we used Streamline each time because we were able to get beneficial rates through a Royal Bank of Scotland group bank.

The application to completion time has varied from 2 to 6 weeks and that's been purely down to their internal processes - the more vigerously we chased the application the quicker it got sorted.

My Merchant account was set up within 3 days via Barclays... brilliant and no need for P&L or balance sheet.

 

[davidOmmi]

Hello thank you very much for all the good information you provided . Would please let me know if it is possible to open A Merchant Account from foreign country or do I have to be in UK to do so.
Thanks in advance

 

[Festoon Lighting]

As an alternative to this you could always use Pay Pal

 

[RodriVLR]

Really good!

 

[Gulet Escapes]

Great article. Answered lots of questions I had in my head. Thanks

Gulet Escapes | Boat Holidays in Turkey and Croatia

 

[Gulet Escapes]

I spoke to lots of places about this and there seems to be a huge price discrepancy between different companies. Does this reflect on the quality of the service you get or is it just that they exploit people's lack of knowledge on this.

What could be the hidden costs? Someone mentioned PCI complience being a must. I' ve never heard of this. Any advice?

Gulet Escapes | Boat Holidays in Turkey and Croatia

 

[Zeniva]

I am surprised Stripe hasn't been mentioned here, it saves a lot of hassle and is likely to be cheaper than all the merchant accounts out there.

Their are now POS devices as well and sign up and set up is near immediate for online businesses.

 

[Jeff Nev]

Very useful, thanks!

 

[AlunLucas]

All good advice. One point I would like to add is that there are a number of independent agents who make their living making sure they know the rates across the market so can advise which is the best deal for you (they get a commission from the provider so don't charge the merchant anything). They also have a human voice rather than just a web interface so can answer any questions you may have. However, beware that some of them are in bed with a single card provider so they may not be working in your interest - make sure you probe them on that.

You can find them by searching for "merchant services advice" or something along those lines.

 

[xnstandy]

Hi, when will you update this again? thank you