Coronavirus is changing takeaway owners' attitudes to accepting cards - which solution is best for your business ?
Impact of lockdown
Whilst coronavirus has been crippling for many UK businesses, food takeaway services are seeing unprecedented demand. A recent survey by statista found that a staggering 86% of 18-34 year olds are increasing or planning to increase their usage of takeaways and even in older demographics (over 55's) that percentage is as high as 44%. And how customers pay is changing dramatically too. Link , the operator of the UK's largest ATM network said that in the first week of lockdown, the UK's cash usage reduced by 50% as consumers turned to cards and contactless payments over virus fears of handling money.
Cash usage is on the decline in the UK anyway, but coronavirus has now accelerated that decline to such an extent that a cashless society is no longer 20 or so years away. Takeaway owners have historically been resistant to accepting cards, primarily due to the perceived cost. We are all familiar with the handwritten sign behind the counter :
"Cards Not Accepted for Orders less than £20"
But now takeaways (and businesses generally) need to adapt urgently to accept cards as a form of payment for all transactions or risk being left behind by their competitors. The good news is it isn't nearly as complex or expensive as you might fear. Heres a few tips to get the best solution and deal for your business.
3 Short tips to get the best card processing deal
Tip 1 - How much cards will you take ?
This is critical and the answer informs the choice between 2 distinct options -
a contract which has high fixed costs but low variable costs. This would be a traditional card terminal from a card processor like Allied Irish Bank, Barclaycard, WorldPay, Lloyds Cardnet, First Data, Global Payments or Elavon
a "pay as you go" option with low fixed costs but higher variable costs. This would be a mPOS terminal (mobile point of sale) from a "Fintech" like iZettle, SumUp or Square.
The traditional terminal comes with a host of monthly fixed costs and extra charges which mean your monthly bill is around £35 before you even accept a single card. For example the monthly rental fee on a terminal is around £15 and theres a "Minimum Monthly Service Charge" of around £20 which is payable if you don't process a minimum amount of transactions. You can buy traditional terminals outright to avoid a monthly rental but the overall cost is not significantly lower (you'll still require a monthly service contract) and the hassle factor is higher. The mPOS terminals have no fixed costs or "extras" - you purchase these devices outright for around £20 so theres no ongoing rental. But the per transaction charge for mPOS is higher - you would expect to pay around 1.7% fee for any card accepted vs. 0.4% - 0.9% fee for a traditional terminal, so the variable cost is over double.
If you do the maths (and we have many times) what you find is that typically the mPOS route is cheaper if your card turnover is less than £1,500 - £2,000 per month.
Tip 2 - How will you take cards ?
Okay, so Tip 1 gives us good guidance to follow if we are just taking cards in our shop. But what if we want to take orders over the phone which is quite common?
The downside with the mPOS devices is they do not accept Cards Not Present ('CNP') transactions - they physically need the card to be present and a pin to be entered. The traditional terminals do allow you to key in the 16 digit card number to take payments over the phone when a card isn't present, so whilst more expensive at lower turnover, they do have the advantage of accepting CNP transactions.
If you've opted for a pay as you go mPOS terminal to keep costs down but need to take a few CNP transactions then why not add a pay as you go "virtual terminal". A virtual terminal is a desktop or smartphone application that allows you to key in the 16 digit card number and other details which the cardholder gives you over the phone.
Pay as you go virtual terminals are widely available (no fixed costs but high transaction costs of 1.75% - 2.5% per transaction) from all the mPOS terminal providers (iZettle, SumUp, Paypal, etc) and a number of traditional payment providers are currently offering their virtual terminal solution for free for a few months.
Tip 3 - Do you expect to be around in the medium term ?
Unless its a pop-up/seasonal takeaway, no-one starts a business with the expectation of ending the business within a matter of months, However, it is a fact of life that 90% of new businesses fail, so from the start you have to ask yourself,
what value of long term commitments am I prepared to enter into ?
If you are a sole trader or a partnership, any commitments / liabilities your business enters into are your personal liability and even if the business ceases trading, those suppliers will come after you personally for outstanding balances.
In the card payments world, traditional terminals tend to be leased on 3 or 4 year deals. If your business ceases after 1 year, the card terminal rental company will look to you personally for the rental payments for the remainder of the lease term. The sting is that these payments will all be due upfront in a lump sum - so if there were 3 years remaining then you could be asked for £500 - £700.
So, if the prospect of shelling out that sort of cash on failure of your business scares you then dont enter into a traditional long term terminal rental contract in the first instance. Go for a pay as you go terminal, sure the transaction costs are higher but you can walk away at any time for no cost. Once your business is a little more established and you are confident of a longer term future then you can commit to a contract.
Summary
If you are starting a new business, whether its a takeaway enforced by COVID19 regulation or for any other reason, don't automatically enter into a long term traditional terminal hire agreement from the outset. If expected transaction volumes are low or you're not too sure about the future, start off with a pay as you go option.
This post was inspired by my friend Raymond, who's parents have recently decided their takeaway business finally needed to accept cards.
