In this article, we'll look at the different factors affecting payment processing costs and why not all card transactions can be considered 'equal' when comparing the fees charged by acquirers.
Firstly, a brief overview of how cards are processed by the banking system. This happens in 2 stages - a transaction is initiated by the merchant, requesting an authorisation to 'ring fence' available funds from the card, and then around midnight a Merchant ID (or simply MID) is used to move the funds, from the cardholder to the merchant's business bank account.
Transaction types.
Broadly speaking, there are two types of card transaction; where the card holder is paying in-person via a physical terminal, and when they are not.
1. Face to Face.
The cardholder puts their card in a payment terminal and enters a PIN code for authorisation. Nowadays, lower value transactions can be made via "contactless" methods, tapping the card or their phone on the terminal.
2a. E-commerce (ECOM).
When shopping or making a hotel reservation online, the guest uses a one-time password known as 3D Secure to obtain an authorisation, either from an app or via email or SMS.
2b. Mail Order / Telephone Order (MOTO).
Before the Internet, people could shop by telephoning a call centre, or by post, either via printed and mass-mailed catalogues, or from adverts in magazines, and write their card details on a paper order form. In the early 2000's, the CVV code came into wide usage as a way of reducing fraud, by ensuring the person making the payment had the card in their hand at the time.
For both MOTO and ECOM transactions, there are additional checks available on the address and postcode that can reduce the rate charged by the acquirer if those checks are passed.
Acquirers view Face to Face transactions as having the least risk, and are able to offer lower rates for these. ECOM transactions secured by 3DS are then the next cheapest to process, followed by MOTO which are viewed as carrying the highest risk of fraud. All OTA bookings are MOTO transactions, irrespective of whether they are processed by Caterpay or a physical terminal, because the guest is not presenting their card to a terminal.
Card Types.
Here, we're not talking Visa and Mastercard, but whether it's a debit or credit card, and then whether the card is a personal (consumer) or corporate card.
Consumer debit cards are the cheapest to process, corporate credit cards the most expensive.
Bear in mind, that for all their perceived convenience, OTA Virtual cards are corporate credit cards. The OTA will be charging you an extra 1 or 2 percent of the booking value for these, on top of the commission you're already paying, and then you're being charged an additional premium by your acquirer when you come to to charge them. Many guest's cards would be expected to be consumer debit cards.
Volume.
The bigger turnover you process, the cheaper the rate you'll get. So if you have a pub that processes £700,000 of F&B via Face to Face transactions, but have 5 rooms bringing in £70,000 pa, the rates you'll be quoted will be much lower for Face To Face, even before taking into account additional factors.
So, it's not a valid exercise to compare the high volume Face to Face rates you might see for drinkers and diners who are paying mainly by debit card, with the price you're paying to charge Virtual Cards from your OTA's.