Terminal payment services
Terminal payment services, also commonly referred to as CHP or Cardholder Present, are those that provide the capability for a purchase to be made on a payment terminal with the card holder present. It is possible to take payments over the telephone or by mail order (MOTO) subject to a suitable setup of the merchant account. It is important to remember, as with any payment service, that there are 2 aspects involved in terminal payments, these are;
- Processing — This is the part of the transaction that gets the customer making the purchase routed through to the acquiring bank. Simply, the software which sits on the terminal enabling payment options to be securely routed to the acquiring bank.
- Acquisition — This is simply the banking aspectof the payments service. When the payment service provider processes the transaction, it is passed through to an acquiring bank for the credit or debit card transaction too be processed.
This process is essentially no different to an online transaction replacing the software application for a physical terminal to deliver the capability to process a card transaction and deliver it to the acquiring bank.
It is important to note that CHP & CNP services require 2 separate merchant ID’s and need to be set up with the acquirer accordingly. Additional merchant ID’s will be required for other card schemes such as AMEX.
Processing a card payment
Whilst over £50 billion is spent on card every month most are unaware of the parties involved in the process when a transaction is made by card.
There are 5 parties involved:
- The Customer —the person who is making the payments.
- The Merchant —the business who is processing the transaction.
- The Acquiring Bank —the business that takes the card payment.
- The Card Scheme — networks such as Visa and MasterCard who work with both acquirers and Issuing Banks.
- The Issuing Bank — the bank that was responsible for issuing the card to the customer.
The transaction process and the interface between all of these parties takes a matter of seconds despite the number of organisations involved. The same process is followed to identify whether a transaction can be approved or declined – typically a decision dictated by the availability of funds for that customer with the issuing bank. The acquiring bank, the card scheme and the issuing bank all take a share of the transaction charge that is billed to the merchant to process a transaction typically all billing is performed by the acquirer who pays the card scheme who then pays the card issuer. These established processes ensure the customer experience is quick and efficient.
Settlement is the process of moving the money electronically from the customers bank account into the merchants bank account. Finally the merchant is charged for each settlement and authorisation, this information is often presented in a monthly statement.
Selecting a payment terminal
Countertop models connect via a telephone line (PSTN) or a broadband connection (IP). Some models also have the option of connecting a Pinpad to the terminal, and are used when a consumer is separated from a cashier, such as in a post office or a petrol station. It is important to note that Pinpad’s do not have built-in receipt printers, and are not standalone devices, but are physically connected to the countertop terminal.
Wireless terminals use Bluetooth to communicate to a base unit, which is connected via PSTN or IP. Wi-Fi models, can be supplied with an access point. Customer’s may opt to use their own access point, but must be aware of their obligation under PCI compliance by ensuring their own device is not accessible to the public internet.
Mobile terminals use 3G or 4G signal to achieve their connectivity. These terminals have a physical SIM card inside the device, like a mobile phone, but with a different configuration. Some GPRS terminals are supplied with global roaming SIMs which enables the device to find the strongest available network to lock onto, providing the customer with the best opportunity to take payments while on the move. These SIMs are also known as machine to machine SIMS (M2M) and only connect to a specified destination. They cannot be used as a standard mobile or mobile data SIM.
Options and Specifications
Terminals currently have mono or colour screen options, but mono is gradually being phased out by manufacturers in favour of colour screens. All terminals have Contactless and Near Field Communications (NFC) payment options as standard.
When a merchant has successfully applied for an account with an acquiring bank and has been issued with their merchant ID (MID), they can then order a terminal of their choice to suit the type of business they run. The terminal will be given a unique ID number, known as a TID. This is used to identify the device for the duration of it’s useful life. The TID is linked to the MID for settlement of funds into a merchant’s business bank account. It is supplied to the acquiring bank as part of the process of setting up a merchant to make their service live.
Most terminals that aresupplied use what is known in the industry as APACS40. This means the transaction is authorised and settled with the bank at the time of the payment transaction. Traditionally, many terminals have used APACS30/29, where the transaction is authorised (APACS30), but not settled immediately (authorised but not debited). The transactions are stored, and then bulk settled, usually overnight (APACS29).
Dynamic currency conversion
What is DCC?
Dynamic currency conversion (DCC) is a point-of-purchase service where international Visa and MasterCard card users can choose to pay in their own currency, rather than the domestic currency being used in the country where they are making their purchase. This removes the unpredictability of the foreign exchange rate provided by the customer’s bank when making international purchases as it presents the exchange rate at the time of purchase, so debiting the transaction in the local currency.
DCC is frequently used in hotels and restaurants as well as in tourist hot spots and serves as an opportunity to not only remove the unpredictability for consumers but also as a revenue generation opportunity for the merchant.
How does it work?
A merchant needs to process a minimum of £150,000 per annum in foreign exchange (FX) to qualify for a DCC merchant account with FDMS.
Using a specially configured terminal device the consumer inserts their card as normal, but before entering their pin they will be asked if they wish to debit in the local currency or in their home currency. An equivalent cost in their home currency, using a live foreign exchange rate, will be presented to them at the point-of-purchase when they will have the option to select or continue to purchase in the local currency.
An FDMS DCC application form will need to be completed. Merchant accounts with DCC requirements take 48 hours longer to be approved than a standard merchant acquiring account, partly due to the manual boarding process used for the DCC platform.
There is also a manual boarding fee for the DCC platform per MID (Merchant Identification Number) which is payable by the merchant.
As the terminal device requires specialist configuration the supply and model selection is generally different to the standard offers.
As an example, the terminal manufacturer used for the DCC service by FDMS and FEXCO is Verifone. It covers all connectivity types: Fixed (corded) models with dial-up (PSTN) or broadband (IP) connectivity, Bluetooth and Wi-Fi as well as GPRS with a multi-network roaming SIM card.
Terminals are generally available on a 36 or 48 month lease but may vary depending on the supplier.
Merchants earn commission on their total foreign exchange (FX) monthly transactions. This can typically become a material revenue source for busier locations which are popular with International tourists, often off-setting the total cost of the transaction charges for non-International cards. The commission is paid directly to the merchant from FEXCO.
Merchants will need to be PCI compliant in the usual way and pay the monthly PCI charges to be enrolled in the PCI program. There is a transaction processing cost as part of the merchant services, payable by merchants across all transactions.
DCC benefits for cardholders
|Convenience||Cardholders know how much they are spending in their home currency.|
|Transparency||Full transparency on competitive foreign exchange rates and margins at the point of purchase.|
|Customer Choice||Cardholders are given full choice to accept DCC or not when making their purchase. Full visibility of the exchange rates and margin applied are provided.|
|Exchange Rate||Benefit from a locked-in competitive exchange rate when making a purchase.|
|Business Travel||Simplifies expense account claims for business travellers.|
|No Additional Cost||DCC is not an additional cost or fee. It replaces the normal currency conversion process applied by card schemes and issuers.|
FEXCO will provide every DCC enabled merchant with an Account Manager to support them with best practices, training and support. Merchants will be targeted to achieve greater than 60% conversion rates on DCC.