It’s possible to work this one out whether you should accept cards with a little bit of GCSE maths. So, this chapter aims to show you a few equations which call tell you when taking cards will be worthwhile for you as a merchant.
It doesn’t account for things like whether it’s easier for your customers – which are an added benefit. It also doesn’t look at the cost of the alternatives – e.g. It’s a lot quicker to take card than cash.
Here’s a quick table which shows you whether it’s profitable to accept cards in seconds.
|If your margin is...|
|20%||one in twelve would need to walk away|
|30%||one in eighteen would need to walk away|
|40%||one in twenty-four would need to walk away|
|50%||one in thirty need to walk away|
|60%||one in forty-six would need to walk away|
If that’s left you scratching your head – we can go through what that
The number of people who will use cash if forced to matters because if you accept cards, you’ll pay a processing cost on their transactions. That’s the whole transaction value multiplied by your average processing cost – which might be really complicated (see chapter 1) but I’m fixing it at 1.75% – which is the most anybody should have to pay. That’s what you lose by taking cards.
The number of people who go elsewhere matters because you’re losing your margin every time one of them decides to go to another shop/stall and buy their lunch there. That’s what you gain from taking cards.
So the ratio we’re interested in is the margin on new card business compared to the extra processing cost of taking cards on existing business. Or, how many people would need to walk away (= no margin) versus the number of people who would stay and use cash (= saved card processing costs).
If you want to do the equation yourself, I’ve put all the detail below!
But how high are A and B? It’s not possible to know for sure. In the
example above, I’ve talked about it being a proportion of people
trying to use cards in your store and being sent away.
That’s a simplification. Depending on your store type, most of your customers will know ahead of time whether you take card. And how close is the nearest cash point? Does it charge? Is there an easy way to obtain the item or service via a competitor? Do they want the item or service enough that they’re going to trot to the cashpoint, get the money, return, and proceed lose all of the change behind the sofa?
The number of people who use cards is rising. In 2018, debit cards overtook cash as a proportion of payments, rising by 15% – cash use dropped by 14% in the same period. A decent proportion of customers live in a card-only universe – which for customers, is more efficient. Carrying round bits of metal representing different amounts of money feels antiquated in such a technologised world.
This whole guide is designed to answer the question of “how do I know
what’s the best way to accept cards for me” and capture the magic sauce
that would go into a StoreKit recommendation.
But with that in mind, you can:
Payments are peculiar – because it’s a commodity you can always cut a deal. But it’s tough to get a good rate if you’re a smaller business and you go direct. We hire a professional arm-twister to negotiate bloc discounts which we can pass on to our customers. We’re happy to refer you to one of our suppliers or to just chat about the market. We could also double-check that your payment provider is integrated with your EPOS – you’re going to want your EPOS to automatically update everytime someone makes a card payment!
We’ve compiled this guide for people like you! We know that lots of people like to go into conversations primed with knowledge – that’s great! Some people like to go it completely alone, which is fine as well – but remember, if you want to call to check your working, we’re happy to help. If you are going it alone, good luck! Our tips are: negotiate, read your contract carefully before signing, and don’t trust a quote which is cheaper than the interchange costs listed on VISA and Mastercard’s website. And then, come back to buy your hardware here!
Lots of our customers – especially the ones interested in this chapter – aren’t processing very much or for long enough to go through the long-winded tendering process we’re going to describe in relation to acquirers. If that’s you, you need a payfac like iZettle or Square. We usually have some kind of hardware deal with these guys, and we can deliver to on the next working day if you order before 4PM. Email email@example.com saying that you’d like a payfac (or mention iZettle or Square) and that you’d be interested in taking advantage of a hardware deal. We’re on 0203 874 1470 and in the office 9-6.30.
You don’t particularly need to think too hard about which cards you
want to accept – they will all be accepted automatically. Nearly
every major card network VISA, Mastercard, UnionPay, Maestro – will
all be accepted by your card terminal.
With one exception – American Express (Amex). Amex has a few technical differences which make it a huge basket of asterisks.
Congratulations – you accept AmEx. You might notice that AmEx’s rates are above the fixed rate which payfacs offer. There’s probably some combination of absorbing loss and getting better rates going on here.
If you turnover upwards of $1,000,000 per year, this is the only option available to you. Contact them directly via their website or ask to be put in touch by your acquiring bank.
|Symbol||What it means||Express it like...|
|A||Estimated extra business brought in by accepting Amex as percent of current||0.01|
|If A x P is greater than T x B x F, you should accept Amex|
Yes, probably. And we can work it out, with a simple tweak of the
first equation. If you are already accepting other card types, there’s
no up-front cost in accepting Amex. (Apart from your time – there can
be hassle involved in setting up Amex).
If you didn’t bother to plug in your own figures, the punchline is that the maths is very likely to dictate that accepting Amex is worth it.
Amex also tout that their users are richer on average than users of VISA or Mastercard – which is probably true. That would presumably mean that A is likely to be higher than what you would expect.