Most new businesses still go to their high street bank for card processing services without realising this is the most expensive place to go and that the exact same product is available elsewhere at a fraction of the price. Here’s a tangible example from NatWest of just how expensive it is to buy merchant services from your bank.
New businesses myths
So you’re launching your new business. Aside from the business itself, theres a bunch of “admin” that needs doing – maybe you form a company and register at Companies House, you set up with HM Customs & Excise for tax and VAT and you need a business bank account. Maybe you also need to take cards and the nice man at the bank says thats something they can do for you – just sign these forms and the bank’s “partner” from WorldPay, Global Payments, Elavon, etc will contact you to arrange delivery of your new terminal. You don’t know if these rates are good but he’s your bank manager so he won’t rip you off and any way, isn’t it better to have your card processing and your banking in the same place?
Disappointingly, your bank will charge you above market rates – this isn’t even a point of view, this is a well known fact to all in the cards industry and established card accepting businesses, who’ve learned by their own mistakes and found cheaper options (click here). And you don’t need to use your own bank for card processing – any card processor can settle into any business bank account, they are 2 totally separate services with no overlap. Indeed, most banks use an entirely separate third party provider for card processing anyway (click here).
So here’s the proof of the pudding. This is a quote for card processing that a new client obtained from NatWest when setting up his business bank account. Natwest/RBS use a third party provider, WorldPay, to provide card processing to their clients. The Natwest/RBS bank managers/relationship managers have little leeway to negotiate the rates they can offer.
The rates are extremely high – at 0.93% the debit card rate is around the same rate that larger businesses would pay for credit cards and is 0.73% (less 1p) higher than interchange (WorldPay’s main cost – see here) so WorldPay would make a whopping c.365% profit margin on their interchange costs.
Similarly with personal credit card rate at 2.08% is 1.28% higher than interchange giving WorldPay a profit margin of 160% on their interchange costs.
Paper vouchers (if you still use the old imprint machines) cost an eye-watering 3.92%. Historically the interchange costs of this method of taking cards has been higher for WorldPay, perhaps justifying a slightly higher rate than chip and pin, but not double. The interchange cost for paper vouchers is now the same as chip and pin (0.8%) with MasterCard and is marginally higher at 1.3% with Visa (until December when it too will be aligned with chip and pin).
The final nail in the coffin is the set up fee of £75. Most other providers other will not levy a set up fee, and those who do generally charge this in lieu of ridiculously low processing rates (which the Nattiest rates clearly are not!).
Comparison to market rates
So what rates could you get elsewhere? Well, it just so happens that the very same day we were approached by this client, we were also approached by another client who had just received a quote from Handepay. Handepay are one of WorldPay’s largest ISO’s (i.e. a reseller) and as our regular blog readers know, from an ISO you can buy the exact same merchant account and rent the exact same terminal model as you can directly from a merchant acquirer…..just significantly cheaper. So how does Handepay’s ISO rates compare to WorldPay’s merchant acquirer rates and whats available elsewhere in the market for a typical new to cards SME merchant?
What’s striking about this table is the price differential between Natwest and Handepay – to reiterate, both are selling the exact same WorldPay merchant account and renting the exact same terminal models. And its not as if Handepay are particularly cheap. As you can see above the market rate is lower still and on the Cardswitcher website (click here) there are even lower rates available than the market rate!
The message is quite clear – if you go to a bank for card processing/merchant services, expect to pay significantly above the market rate!