Considering Whether to Take Credit and Debit Card Payments? Advantages and Disadvantages of Taking Card Payments for a Small Business

As a small business in the time of COVID-19 and a worldwide pandemic, the pressure from customers to accept debit & credit cards, as a form of payment, has increased substantially. Some customers, sadly, are even posting negative comments on local business sites such as on Google when a particular retailer such as local shops, takeaways, cafes, hair stylists, Barbers etc refuses to take card payments. This is leading many small businesses to quickly review their position on accepting card payments. start to consider the advantages and disadvantages of starting to take card payments. There are a number of points to be consider before deciding whether this is right for your business.

We take a look here at the advantages and disadvantages of taking card payments for a small business to consider when deciding on whether or not to start accepting debit & credit cards as a method of payment.

Understanding the 9 steps involved in credit card processing can be quite complicated and that in itself can put off many small businesses. So it may also be worth reading our article covering this.

This is, by far, one of the first points to tackle when considering the advantages and disadvantages of taking card payments for a small business as it is the first and main one, given by business owners.

There are the monthly card terminal (also known as a PDQ machine) fees then there are the additional percentage fees per card transaction. In addition, there could be potentially numerous other fees that are not clear. Here we will look to breakdown the various costs to be aware of.

Whilst certainly the high overall costs of accepting card payments has been high, did you know that card payment processors have been working hard with Visa, Mastercard & American Express to reduce fees as each set their own fees which then effects the cost to the retailer of accepting each card type. American Express, for example, generally charges a higher commission rate compared to Visa or MasterCard. However on a positive note, the charges set by the big 3 in the UK have reduced to the point where it is no longer financially onerous for a retailer to accept debit or credit cards.

Indeed, consumer debit card processing costs have been reducing substantially and is the lowest cost to process of all the various card transactions types. In general, Credit card transactions costs can be slightly more than for debit cards. American Express cards, whilst having higher processing costs, many businesses, simply choose not to accept Amex or will only accept this card for transactions over a certain amount. Please note that American Express have their own direct sign-up process (linked to your merchant ID number) to accept their cards.

Terminal rental monthly fees have also come down, as market pressure increases, to reduce the costs to make it viable for all small businesses to accept debit & credit cards payments. Contracts tying a small business for a shorter-term are also available my many providers, driven even more so after the current impact of COVID-19 on the economy and all businesses.

The challenge now for a cash only business that is to weigh up the cost of setting up a card terminal against losing customers as many people now state that they don’t want to risk contracting the virus via the handling of cash . The preferred method of payments is quickly becoming contactless card payment especially since the contactless limit was increased from £30 to £45 on the 1 April, 2020. People are a lot more concerned handling cash given the number of hands it may pass across.

Set-up fees by a merchant service provider used to be quite normal. This charge is no-longer the norm in the UK and you should be able to find a merchant services provider, like Card Pay Accept, that doesn’t charge this fee.

Costs are much more reasonable and if you then weigh that up against the costs for paying in cash at your bank and the higher insurance costs of holding cash on premise then it is worth calculating the real cost of a cash business. Then there are the security and higher insurance risk factors of keeping a lot of cash on premise.

When evaluating the advantages and disadvantages of taking card payments for a small business, at this stage it is worth setting out a potential example of what it might cost a small business to take credit & debit card payments. You may be surprised how the overall costs have come down. If you already accept credit card payments then it may also be worthwhile speaking to other providers as costs, compared to a few years ago, have reduced by up to 50% against what you may currently be paying. See also the section below covering banks costs

A business, such as a cafe or salon, with a joint consumer debit and credit card (face-to-face card payments) monthly turnover of around £5,000 per month could expect to pay around £60 to £80 per month that includes all card transaction fees, monthly terminal rental & PCI compliance. The final cost will depend on the card type mix, whether the card holder is face-to-face (known as secure) or on the telephone or online (non-secure which is deemed to be higher risk).

There are many examples, where some businesses just have no current need to offer debit or credit cards as a payment option such as a tradesman or a market trader. In this scenario you know what is best for your business and if it doesn’t affect how your customers perceive you and if it isn’t doesn’t lead to losing customers, then that’s fair enough. You have time to wait until there is a concerted societal move towards a cashless society.

It may be, though, that initially you want to test out the impact on your business of taking card payments without being tied into a fixed monthly contract or that you have some high-value payments when your customers prefer to pay via a debit or credit card. For all these scenarios, there are a number of mobile card machine options available for you to consider with either a small or even with zero monthly fees but higher transaction fees, per card payment.

It should be noted, that there are some really low cost options to allow you to accept credit card payments, say for example you could offer this option only when the transaction value is so high that it is better for your customer and yourself to take that payment via a credit or debit card. The options are a mobile credit card terminal connected to your smartphone or a full size terminal with GPRS/SIM Card that allows you to take card payments wherever you might be. The cost for a mobile card machine can be a small monthly fee with a fixed percentage transaction fee per card payment which you can sign up for a 12 month period. This would then allow you to accept card payments during the COVID-19 pandemic period and then revert back to cash and cheque only after we come out of the other side.

There are also options whereby you buy a mobile card machine for a one-of fee, no monthly fees but with a fixed transaction fee which can range between 1.6% to 3.5% per card transaction. Whilst this saves on the monthly fee on the mobile credit card terminal you should also be aware that with the mobile card machine option you would also pay substantially higher percentage fees for each card transaction, these are generally higher when no monthly fees are being paid to your provider.

For comparison purposes when you pay some level of monthly fees then the transaction fee per card payment could be 1% or less, depending on the card type. So it is worth discussing your specific requirements with a provider who can calculate the costs for the different options and show you the comparison. Many businesses start with the mobile card machine option first but then soon realise that paying say, 1.7% or more on a debit or credit card transaction valued at hundreds of pounds or more soon adds up and eats away at your profit margin.

SumUp currently offer their UK mobile card machines for a one-off fee with no fixed contracts and no tie-in’s where you simply pay a fee of 1.69% per card transaction. You can find some promotional prices for their mobile card machine via this link – SumUp Promotional Mobile Card Machine.

Does taking payments by debit or credit card mean that your funds are credited to your bank account for value, a few days later than cash?

Another disadvantage has always been receiving the value of your funds, received by card payment much later, than with cash. This in turn may effect the cashflow of your business. It is the case that some merchant acquirers do take up to 48 hours to credit your funds received by card payments. However, there are also providers that can now credit your funds, (received by debit & credit card payments) into your bank account next or even the same day. An important cashflow factor to keep in mind when choosing your credit card terminal provider.

The general rule is that if you pay a monthly card terminal rental fee then you’re likely to have the option of receiving your money the same or even the next day. Mobile card machines are likely to credit your bank account in 2 to 3 days as a way of offsetting not charging any monthly fees.

Customers of many businesses are placing greater pressure on small businesses to accept debit and credit cards as a form of payment. The reasons for for which are many. We explore a few here:

Many people now expect to pay by card in most retail environments. Contactless card technology has increased the customer demand to pay by card. They don’t even need to use a pin number and can just tap their credit card, debit card and even their smartwatch or smartphone. Currently, customers can pay up to £45 by Contactless.

In fact, there are a growing number of people that have stopped carrying even a debit card, let alone any real cash, due to the increased use and convenience of paying by Google Pay and Apple Pay via a smartphone or smartwatch. Both utilise the secure contactless payment technology and a little known benefit is that for both, purchases can even be above the current £45 contactless limit, however some shops have placed a payment value limits on their systems but technically a consumer can pay over the Contactless limit. Both tech giants claim that it’s a safer way to pay and just as simple as using your physical card. In addition, they both offer the convenience of storing electronic versions of loyalty cards on the smart device.

It is thought that people have an aversion to spending cash but that spending via a debit or credit card doesn’t have the same concern about spending as handing over actual physical cash. This is turn has led to speculation that customers are more inclined to not only spend more but also more likely to make spur of the moment purchases when using a card.

Many professionals & business owners now carry a business debit card or a corporate card and may prefer to pass purchasing costs onto their business or employers costs for a particular item. Paying by these type of cards allows them the convenience to make that purchase and to know that they can simply segregate that purchase as a business or employer expense. By offering the option to pay by card may give your customer the convenience of buying from you rather that going online for that item.

By offering the option to your customers to pay by card is also known to increase the credibility of your business. As a small business to sign up with a merchant acquirer you would need to pass a simple KYC and credit check which raises the credibility perception of your business in the eyes of your customers.

It certainly feels, since the 2020 pandemic, that the commonly seen accepting “Cash Only” sign may be under pressure. Survey’s such as the one from Mastercard found that three-quarters of shoppers will intend to continue to prefer using contactless card payments over cash, post the COVID pandemic. In Europe, 75% of in-store Visa payments are now contactless. In another survey by VISA those that have returned to physical stores after the 1st lockdown, 42% already pay by contactless whenever possible and a further 9% use their smartphones for mobile payments. GooglePay and ApplePay and the ever increasing confidence of using your smartphone as a payment method will likely mean that the current 9% of users will increase rapidly in the coming few years.

The Forbes Technology Councils member, Miron Lulic (also CEO of the US website SuperMoney.com) reports that over a quarter of small businesses surveyed have seen increases in payments made by smartphones and contactless cards. He also goes on to predict that 1) “Contactless payments will supersede cash and even traditional cards”. 2) “The global contactless payments market size is expected to go from $10.3 billion in 2020 to $18 billion in the next five years“. 3) “Mobile wallets will replace physical wallets”.

This article on emarketer.com website states that in 2019, 81.1% of smartphone users in China used mobile payments compared to just 19.1% in the UK. The growth of UK consumers using their smart phones & smart watches to make contactless payments for their day to day goods is expected to increase rapidly.

There are a few extra costs factors that are rarely accounted for when considering reducing the cash portion of the business turnover.

By taking more of your daily turnover by card payments reduces the risk to you and your staff. Holding less cash on premise reduces the risk of burglaries and also the amount of potential business turnover you might lose in the event of such a horrible scenario

Holding less cash on premise also could lead to lower insurance costs. Insurance premiums are based on risk factors such as the amount of cash you hold. The higher the level of your turnover you take as debit or credit payments lead to the added bonus of holding less cash and in turn lowering the risk premium on your insurance. This benefit of accepting card payments can sometimes be overlooked.

Depending on who you bank with there is a potential cost charged by your bank for paying in cash into your account. This, also can be benefit easily overlooked. Some banks charge small business customers anywhere between 50p to £1 per £100 for depositing the cash turnover into their business bank account. If you have a high level of turnover then you may also have the added cost of a security carrier to collect your cash from your business premise to then deliver it to either to your chosen bank or to a banks nominated cash security centre.

According to a thisismoney.co.uk article HSBC raised its monthly account fees for business customers from £5.50 to £6.50 while increasing the charge for shopkeepers wanting to bank cash from 60p to 70p for every £100 of takings. Earlier in the year, Lloyds ramped up its charges, raising its fee for handling cash takings from 70p to 75p per £100 for bigger businesses. Smaller firms pay £1 per £100. In addition, our major UK banks that we’ve relied on for so long are closing many local high-street branches. Over 6000 have been closed in the last decade, according to the This is Money article.

Given the high costs of bank fees for depositing cash as well as the higher risk costs of cash on insurance we have even seen calculations whereby it can be that your overall cost of banking is lower overall when accepting debit & credit payments in your business, compared to a cash only only business. When calculating the advantages and disadvantages of taking card payments for your business these two costs are often forgotten about when comparing the costs of cash vs card payments.

The times are changing for all business environment’s and whereas a few years ago we couldn’t see cash ever completely disappearing now it feels like the move to a cashless society is rapidly approaching. COVID-19 has accelerated the move away from cash rapidly if these press reports on the germ ridden bank notes are to be believed.

Many businesses have had to make the sudden need to add click & collect via their website or to accept card payments via telephone. This can easily and quickly be set-up so that even during a lockdown you can continue to trade (where click & collect is allowed) by evolving your business. Once this is in place this also means that you may have advantage over your competitors who are struggling as they insist on still only accepting cash or cheque.

An analytics tool that provides every detail of your customers spending details can also give you another important advantage over your competitors. This would allow you to monitor your customers spending patterns, such as the amounts spent and the preferred times that they shop. This then allows you to plan your resources and products accordingly as you monitor the daily & seasonal trends specific to your business, that a card payments analytics tool would provide. This is of course much harder to do with a cash only business.

Ultimately, it is your business and for you to decide when the time is right to start offering a card payment option to your customers. This may be urgent for you if you are deciding to become an online business or deciding to offer a click & collect service which may allow you to continue trading during any future lockdowns. As always please check any current trading government guidelines at the time. As a reminder, click & collect allows your customers the opportunity to choose a product and pay in advance (via your website or mobile app) via their debit or credit card. They then choose a convenient time to collect from you or you can deliver the product.

There are many points to consider but the main one of cost, normally given, should now be a smaller barrier than it may have been before. There are many advantages that should also be taken into consideration before deciding. The ever-increasing preference from customers wanting to pay by their debit or credit cards is growing especially since the public discussions around cash having the potential of carrying germs and bacteria and the need to reduce the risk of coming into contact with a virus such as COVID-19. Handling less cash by businesses also reduces the risk factor for you and your staff.

The volume of payments being made digitally and with minimal contact is increasing every year and many businesses will need to review when they decide to embrace offering these payment solutions. The cost factor or cashflow factors of accepting card payments are no longer the barriers they once were.