The Changing Face of Payments Stuart Jones

In the “Good Old Days” organisations which received large numbers of small payments from individuals, would have substantial and complicated physical cash management operations. In fact, a chief cashier of a local authority, or a manager of a large supermarket in the 1990s would be surprised that businesses now use “cash” as a catch all term including electronic payments, for them, “cash” would refer to the notes and coins that 95% of transactions used.

These large physical cash incomes required large operations. From the rows of cashiers desks at a local authority taking in council tax to the daily pick up of cash from busy retailers, taking payments was time consuming and costly; holding, transporting, counting, securing and administering millions of pounds in physical money was an expensive undertaking.

Cheques solved the problem of carrying wads of cash around for the individual but did little to reduce the costs and administration for the organisations taking payments. Cheques still needed to be stored, transferred and banked, and had the significant drawback that you could not use it immediately for your own cash payments. Not only did they need to be banked, they took five days to clear.

Although standing orders and CHAPS payments were available, both consumers and organisations were wary of them – CHAPS payments cost individuals significant amounts and so were impractical for large numbers of small payments. Standing orders gave the organisation no control over the payments and could be withdrawn by the individual at any time.

Things began to change with the introduction of credit cards and Direct Debit. Direct Debit began as an efficient secure method of paying salaries through the Bacs system, but really took off as a secure way of taking payments, which the seller had control over, and unlike a standing order to could vary the amount from payment to payment.

Cards were slower to take off. Those with of us with a little grey in our hair will remember the old manual imprint machines which used carbon paper, gave everyone inky fingers and took forever to use. Cards were useful for large purchases, but for small and medium sized transactions, cash and cheques were quick and efficient.

Technology has changed all of this. Swipe & Sign, followed by Chip & Pin and most recently contactless payments have made payments by card now actually faster than paying in cash for most people. The days of worrying about having cash for your trip to the shops are mainly over.

For example Transport for London has 1.37 billion journeys ever year, with a large proportion of these made as direct contactless trips. In the first year on contactless being available 635,000 contactless trips were made per day – each one requiring a “merchant acquiring” transaction. These figures don’t include the millions of Oyster Card top ups paid for by debit or credit card. For TfL, the days of physical cash being paid over for a paper ticket are numbered, with the remaining hold outs being confused tourists and committed technophobes.

Simultaneously, card payments have been made even more popular by the rise of online shopping and payments. For many people paying council tax, the gas bill or doing the Christmas shopping is something that is done in front of the screen. New technology companies have pushed the envelope further with “Wallet” features from both Samsung and Apple making the physical card redundant for contactless payments, and companies like Uber removing notes and coins from even the most traditionally cash intensive businesses.

Most organisations aren’t processing the number of transactions that TfL does, but any organisation which has a large number of individual payments will see that the future is not in physical cash. Most large organisations take payments over the phone, on the internet or through automated machines and so need to make sure its Merchant Acquiring contract is fit for purpose.

Merchant Acquiring is the plumbing to all of these new payments. The Merchant Acquirer processes the transactions and transfers the money into the organisations account – all for a fee. However, even though card transaction now make up more than 50% of all payments, both by value and by transaction numbers, Merchant Acquiring has often been overlooked by organisations looking to drive efficiencies and reduce costs. For years banking costs dwarfed those of card acquiring, but now the roles are reversed, and the recent lifting of caps on card transaction costs by both Visa and Mastercard mean that suddenly exchequer teams need to be on the ball with the organisations acquiring contract. Something that has been in the background, and not worried about (as long as it works) is suddenly and business critical process and a significant line in the budget.

At Arlingclose we can assist our clients with their Merchant Acquiring contracts. For many this will be simply a case of getting the most out of a current provider, but for others this will mean daunting task of tendering for and possibly changing acquirer. None of this needs to be stressful or a business risk. Arlingclose can help our clients to provide their organisation with the best value for money.