A Brief Guide To Contracts For Your Card Processing

You’ve decided on a card processing supplier, now you need to fill in application forms for your merchant account (or internet merchant account and payment gateway), your terminal rental and direct debit mandates.

Why so many forms?

Often, the terminal supplier, the merchant account supplier and the payment gateway provider will be different parties – this is quite common and works well throughout the industry.  This is because the merchant account supplier must be a card scheme member (limited to a handful in the UK) whilst an ISO or a reseller can provide terminals and a payment service provider (“PSP”) tends to provide the payment gateway.  The ISO will partner with a card scheme member to provide the merchant account and a PSP to provide the payment gateway.

Also, the terms within the different agreements will vary.  A merchant account will typically be terminable within 1 – 3 months whilst a terminal agreement will typically have a minimum term of 3 or 4 years (sole traders, partnerships can likely break after 18 months under the Consumer Credit Act 1974).

Irrespective of whom you contract with, the process and timescales are the same.

Is any help available to complete the forms ?

Yes.  Almost all suppliers will encourage you to let them complete the forms on your behalf often by phone.  They will then forward the completed forms to you for signature.  This works well, often the forms contain numerous questions which are not applicable to your business and your supplier will be able to move quickly through the form ignoring the irrelevant parts.  You and your supplier should be able to complete the forms in 10 minutes.

Who am I contracting with ?

For the merchant account you will always be contracting with the card scheme member, ie the acquiring bank.  For the terminal rental it could be the acquiring bank, one of its subsidiaries or the ISO (or other reseller) depending on who you choose.  For the payment gateway you will contract with the PSP.

What is the typical minimum rental term for a terminal ?

Typically 3 or 4 years, though there are some deals with shorter minimum terms (1 or 2 years) and some for longer (5 years).  Suppliers offering a longer period than 3 years will typically offer a discount for the longer tie in, and conversely you will often be charged a higher cost if opting for a shorter period.  There are deals with no tie in but other costs (transaction fees, etc) will be higher.  Do look at the overall cost of card acceptance when evaluating – don’t just go for the cheapest terminal.  Be mindful, that when you are locked into a contract, you may not be able to exit without penalty if you were unhappy with a change in pricing, terms or service level.  So a longer contract with cheaper terminal hire could work out more expensive in the long run.  Also look out for conditions around the “riolling” of your contract.

What happens after the minimum term expires ?

For most suppliers, you would then be on a rolling contract which can be terminated at short notice (30 – 90 days is common).  Do read your contract carefully on this point.  Some suppliers will restrict the period on which you can give notice to terminate to the anniversary date when the contract was signed.  If you miss this date to tender notice then you will need to pay a 1 year or 2 year termination fee or wait another year or 2 years to terminate without cost.

What if I terminate before the end of the minimum period ?

In almost all cases, a fee will be payable.  The size of the fee depends on how much of the minimum term is remaining.  Typically the fee is at least the terminal rental cost for the remainder of the minimum term (sometimes with a small discount).  As an example, if your monthly terminal rental was £15 and you terminate after 1 year of a 3 year minimum term then the termination cost could be £360 (2 years rentals).  It sounds a lot, but if you found a cheaper deal, this may be a cost worth incurring – it would only take a saving of £180 per year to make the switch now worthwhile rather than waiting a further 2 years.

Some suppliers will charge an additional fee on top of the remaining rental cost, a  “re-stocking fee” and some suppliers may offer to subsidise some or all of an early termination fee if you switch to them.  We stress the need to look at overall costs including this subsidy when selecting a new supplier.

If you are unincorporated (sole trader or partnership)

Remember the Consumer Credit Act 1974 which may govern your terminal rental agreement.  Your supplier should have pointed out if the terminal agreement is governed by the Consumer Credit Act 1974 and this will probably allow you to terminate after 18 months rather than the contract minimum term, if longer.  There are some exceptions to the general rule but the majority of unincorporated business will enjoy the protections offered.  Some suppliers seek to avoid the protections offered to you by structuring the agreement as a “membership” rather than a hire agreement.  Watch out for this because as the law currently stands (and hopefully it will change) this will void the 18 month get out under the 1974 Act.


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