Payment processing for the UK high street – who does it ?

Historically for most merchants, payment processing services are bought from their high street bank because of trust and familiarity.  But do those merchants know who now owns those businesses and who runs payment processing on behalf of the high street banks ?  It isn’t the familiar high street bank themselves, but more often than not, its a US technology firm or venture capitalists.

Definitions

First of all, lets start with a few definitions / phrases that are sometimes used interchangeably in payment processing :

An acquirer, or acquiring bank, or merchant acquirer or acquirer of record is the Visa or Mastercard scheme member who is financially liable for a transaction.  In the event of financial failure of a merchant, they are liable to the cardholder to re-imburse their money.

A processor is merely the company who owns and operates the technology, or processing platform which physically processes the transaction.

It used to be the case that the acquirer and the processor were one and the same, ie an “acquirer processor” but many acquiring banks have realised that payment processing is really about technology and not banking and their core business is not the operation of a technology platform.  So they have sold off or outsourced the payment processing part of their merchant services business, whilst maintaining their role as acquirer, purely because it is a requirement of Visa and Mastercard.  The banks also provide access to their customer base to the processors, a rich source of easy referrals for the processor.

WorldPay (Streamline) – RBS / Natwest

Royal Bank of Scotland / Natwest sold their payment processing business, WorldPay, in 2010 to a couple of venture capitalists, Bain Capital (of Mitt Romney fame) and Advent International for £2 billion.  Both venture capitalists own multi-billion dollar funds invested in many companies across various industries which they hold for a time then sell at a profit.  RBS maintained a token 20% share (until November 2013 when Bain/Advent bought this as well) and unusually WorldPay was allowed to become a member of Visa and Mastercard and therefore become an acquirer.  Ownership of WorldPay is expected to change again when the business is sold by the current venture capital owners.

Global Payments – HSBC

In 2008, HSBC sold 49% of its payment processing business to US processor, Global Payments, and the remaining 51% was sold to them in 2009 along with a lucrative 10 year deal for HSBC to refer its customers to Global Payments.  Global Payments is a US listed business with a market capitalisation of $4 billion and global operations.

First Data – HBOS / Lloyds

In 2003, HBOS outsourced its payment processing activities to First Data with First Data taking full responsibility for all processing, credit, risk and back office.  First Data is the world’s largest payment processor, based in the US with global reach.  It was bought in 2007 by the famous US venture capital firm KKR for a staggering $27.5 billion, $22 billion of which was in debt.  In the UK, First Data also processes for Lloyds (through their joint venture “Cardnet”) and Allied Irish Bank (since 2007).

Elavon – Santander

In 2009, Santander formed a payment processing alliance with Elavon.  Elavon is a subsidiary of US listed bank US Bancorp, the 6th largest commercial bank in the US with a market capitalisation of $69 billion.

Barclaycard – Barclays

Barclays is unique in UK merchant acquiring in that it has thus far retained Barclaycard’s payment processing in-house.

Does it matter who processes ?

We think it does matter who processes your transactions but the fact is the US processors have been doing it for years and quite successfully.  The UK high street banks merely provide access to Visa and Mastercard for the processors and act as no more than sales office for them.

There is another provider of merchant services that UK SME’s can turn to – the ISO (Independent Sales Organisation).  These are smaller independent firms who sell merchant services on behalf of acquirers and processors.  Most SME’s have never heard of them and are naturally concerned on trusting their processing to these businesses.  However, customers of these ISO’s have their transactions processed by the same US processors that process for the high street banks so these concerns would be misplaced.  Furthermore, these ISO’s are often 40% cheaper than the processors or the bank acquirers.

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