The coronavirus pandemic spelt trouble for many high-street retailers who, unable to open their doors, were forced to conduct business online, overnight. This epoch of uncertainty and great challenge continues and in order for merchants to make savings and cut costs, they should once again consider reviewing their acquirer contracts.
Indeed, merchants can be charged in two different ways for acquirer services: IC++ fees, which stands for Interchange, Scheme Fees+ Acquirer Fees, and Blended Fees. Contracting with the right acquirer and choosing the best pricing structure are vital for any merchant, but what do these two acquiring services models consist of and why would a vendor choose one over the other?
The Blended Fee is typically adopted by smaller businesses as they know what they will be charged over a fixed period of time. This contract usually lasts between three to five years and is akin to a fixed rate mortgage – you know what you are paying for, despite oscillations in either London Inter-Bank Offered Rate (LIBOR), transaction fees or interest rates.
Although LIBOR is set to end on 31 December 2021 – to be replaced by the Sterling Overnight Index Average (SONIA) – a fixed rate offers merchants more peace of mind in the long run as it means they can set their own budgets and rates accordingly to bolster revenue over a fixed time period.
When card turnover reaches £50 million, however, the pendulum swings in the other direction and merchants are, and most often do, opt for the IC++ Fee option for their payment processing services.
IC++ offers better value for larger merchants; within this structure the pricing model is separated into three separate parts - the interchange fee (paid by the acquirer to the issuing bank), card scheme fee (charged by organisations such as Visa and Mastercard for fee handling) and acquirer processing fee (card service fee). The combined price of each component will be what the merchant is charged.
By adopting this model, merchants have greater clarity as to what they are being charged for and so, for example, may switch their marketing to encourage people to use a certain type of payment method (e.g. debit card over credit card) if one proves more cost effective than the other.
Larger businesses generally have finance departments to scrutinise the various aspects of this pricing structure in order to make savings. Indeed, if they secured a 0.1% reduction for a transaction worth roughly £40 million every year, the company could bolster its revenue by £40,000.
Merchants should, nonetheless, consider a review of their pricing model, particularly if their company has grown over the past 18 months and the acquirer has not changed their rates accordingly.
If this happens, merchants may be paying more than they should. And so instead of waiting around for an approach from a new acquirer offering a better rate, the sensible option would be to get ahead of the curve and conduct a review of their fees to drive revenue in the long run.
About the author
Marc Docherty is Head of UK Acquiring / Large - Strategic Business, at Worldline. With more than 20 years’ experience working for blue chip organisations within the banking and payments sector, including Bank of Scotland, RBS, Barclaycard, AMEX and Visa, Marc’s expertise lies in business banking, factoring and invoice discounting, and cross border payments. He also has extensive experience in acquiring, having focused on the large corporate sector across the UK and Europe for several years.
Marc is passionate about driving solutions that deliver real value to customers whilst helping organisations reduce complexity and enhance the customer experience by providing a complete end-to-end payment solution.
About Worldline
Worldline [Euronext: WLN] is the European leader in the payments and transactional services industry and #4 player worldwide. With its global reach and its commitment to innovation, Worldline is the technology partner of choice for merchants, banks and third-party acquirers as well as public transport operators, government agencies and industrial companies in all sectors. Powered by over 20,000 employees in more than 50 countries, Worldline provides its clients with sustainable, trusted and secure solutions across the payment value chain, fostering their business growth wherever they are. Services offered by Worldline in the areas of Merchant Services; Terminals, Solutions & Services; Financial Services and Mobility & e-Transactional Services include domestic and cross-border commercial acquiring, both in-store and online, highly-secure payment transaction processing, a broad portfolio of payment terminals as well as e-ticketing and digital services in the industrial environment. In 2020 Worldline generated a proforma revenue of 4.8 billion euros. worldline.com
