Pay As You Go and Mobile card acceptance

For low volume merchants, card acceptance used to be economically unviable.  Now the card payment industry has at last followed the lead of the mobile phone industry and introduced a number of mobile card acceptance / Pay As You Go (“PAYG”) options.

Their characteristics are like PAYG mobile phones – high transaction rates but no monthly fixed fees or contracts and for some you do have to buy a mobile terminal or dongle up front.  So, a cheaper option for low volume transactors but for anyone with annual card turnover greater than £22,000 they become significantly more expensive than a traditional terminal contract.

The PAYG options fall into 3 broad categories – chip & pin, card readers and phone/other services.  Where they differ is in the verification process and the cardholder experience.

Chip and Pin Terminal

You need a compatible device (smartphone, tablet), a free app, and a PAYG terminal.  The terminal connects to your device by bluetooth and your customer inserts their card and pin into the terminal as they would for a traditional set-up.

Card reader

You need a compatible device (smartphone, tablet), a free app, and a “dongle”.  The dongle connects to the output socket of your device and the card is swiped across the reader and the customer signs on the screen of the device

Phone/other

There are a few variations.  With Judo there is an app that the cardholder downloads and enters their card details into on their own phone together with the merchant’s ID.  With Payatrader there is a hosted webpage that the cardholder can visit, or a payment link or the merchant can access a virtual terminal.  Both Judo and PayaTrader have a phone option where the cardholder can phone a call centre/IVR and give their card details.  PayaTrader also have a chip & pin terminal option but this retails at an eye-watering £199.

Our View

The industry seems to be currently favouring the chip & pin terminal for mobile card acceptance as it matches the current cardholder user experience.  Both iZettle and mPowa initially started with card reader solutions and have now launched a terminal.  When selecting an option, other than costs, do consider :

  1. Compatibility – used to be more of an issue than today but do check for device and payment type compatability
  2. User experience – what will your customers prefer ?
  3. Flexibility – some of the options above come with a virtual terminal capability meaning you could also accept card not present transactions, eg over the phone
  4. Keep watching the market – pricing will definetely move.  The product is highly commoditised and there are already too many players in the UK market so it is inevitable prices will fall.  Other new entrants will also appear impacting market dynamics – Paypal is due to launch this summer.

Cost comparison

 

At first blush, there isn’t a lot between the mobile card acceptance pack, but there are some obvious outliers.  Transaction rates, with one exception, fall into a 2.65% – 2.95% range and upfront one-off costs fall into a £49.99 – £124 range.  The cardreaders are free (iZettle charge £20 but do give a £20 credit against transaction costs).

If you have  less than £6,000 per year (£500 per month) of card turnover, you can easily pick out the pricing differentials on the table opposite.  Beyond that, you need to compare at various card turnover levels as we have done on the graph below.

WorldPay offers 2 alternatives to the flat 2.75% per transaction offer.  First, an option to pay a fixed fee of £12.99 per month and pay no transaction fee up to £1,000 of transactions per month and thereafter the standard 2.75% rate applies; second an option to pay a fixed fee of £5.99 per month and receive a reduced transaction rate of 1.95%.

When we did the sums we found the cheapest of these 3 options to be :

  1. Up to £6,000 of annual card turnover – standard 2.75% option
  2. £6,000 – £29,000 of annual card turnover – £12.99 per month option
  3. Above £29,000 – £5.99 per month option (albeit above £22,000 a traditional terminal is cheaper anyway – see below)

The key point to note on the graph below is that the traditional static terminal is still the cheapest option at annual card turnover levels above £22,000 vs. WorldPay and above £15,000 vs. the other options.  It costs a flat c.£450 per year up to annual card turnover of £34,000 (because of the MMSC and monthly terminal hire).

Most mobile card acceptance solutions are priced within a relatively narrow range.  With its pricing options WorldPay sticks out as lower cost above £6,000 per year.  To put in context, at £12,000 of annual card turnover, the WorldPay £12.99 option translates to an effective transaction rate as low as 1.29%.  On the other hand, Judo Payments at the same level of card turnover would be an effective rate of 3.48% (using an average transaction value of £50).

PayaTrader also has a tiered pricing structure but the lower rates don’t kick in until a fairly high level of annual card turnover (2.7% at £26,000, 2.5% at £52,000, 2.3% at £130,000).

Graph assumptions

For ease of presentation above we have grouped together the chip & pin terminals (except WorldPay) and presented an “average” cost, albeit there are minor pricing differences.  For WorldPay we show the cheapest of their 3 pricing plans at each level of card turnover.  For all PAYG options we have spread the upfront one-off cost over 3 years.  We have also made some assumptions in deriving the cost of a “traditional static terminal” – 50:50 debit/credit split, ATV of £50, credit at 1.5%, debit at 15p, MMSC of £20 per month, terminal rental at £15 per month and PCI at £30 per year.

And most importantly – this was prepared on 23 May 2013 and will undoubtedly be out of date quickly (see 26 September update).  So do check vs. current market prices for mobile card acceptance.   

 

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