Negotiating an Electronic Payment Solution

If you want to use Electronic payments you will need to undergo an application process.

Think about your average transaction value, transaction frequency, perceived security risk, exposure level, forecast turnover, online turnover, trading history and time from payment to order fulfilment.

The providers assess charge and bond levels by studying criteria like the average transaction value, transaction frequency, perceived security risk and online turnover of your company. Based on each of these criteria's, your company will receive a probable percentage commission charge. If any of the variables above return a disproportionately high charge in the diagnostic tool you may be able to identify a possible handicap for your company when negotiating the charge.

Try modelling various trading scenarios with the diagnostic tool (you can save each one to look at later) and then you will be in a position to ask yourself the question, “What measures can I take to minimise the commission that I will be charged by my solution provider?” For example:

Answer 1: Average Transaction Value

A factor, which will greatly determine what the acquiring bank or service bureau will charge you, would be your average transaction value. To restructure this charge examine how best to package your products for online sales. For example, bundling complimentary products together as a unit sale will increase your average transaction sale and may reduce the security bond and commission rate charged by a service provider.

Answer 2: Exposure

The element of exposure will also determine the methods available to you and the charges for your products. This is a generic term for what proportion of your transactions are liable to charge-back at any time. One indicator of this is the time it takes for your business to fulfil orders. For instance a travel company may take bookings up to twelve months before actually providing the holiday to its customers and will therefore need to lodge a large bond with their acquiring bank to protect against possible charge-backs on the 'purchased' services yet to be fulfilled.

This opposite of this are products that are fulfilled immediately upon or before the actual payment transaction. Businesses which enable software downloads immediately from a website, or restaurants where payment is received after the service is received, are perceived as being less exposed. You can review the packaging of your products and restructure your time-to-order fulfilment for trading over the Internet in order to minimise your company's perceived exposure.

Answer 3: Timescale

The charging structure of your PSP will also depend on the length of time you are willing to wait before receiving payment from customers. For instance many banks and service bureaus will retain your funds for a period of 30 days before crediting your account. Therefore if your company's cash flow structure allows for a longer period before receiving payment you may be able to use this advantage to achieve a lower rate per transaction. By reducing the likely charge on this aspect of your trading you can negotiate more favourable terms when dealing with the Payment Solution Provider.

Answer 4: Security

If a solution provider indicates they have increased their commission in response to an issue of security, you should consider reducing the perceived security risk. Often measures such as phoning customers to authorise orders in excess of £100 would convince the PSP or Acquiring Bank that you represent a lesser risk and offer you a lower level. (The value of the transaction threshold will vary according to your business and average transaction value).

Close