Getting a business bank account – not a simple as you might expect.
Most banks provide a business banking service but they can differ significantly in their offering.
Many provide free internet banking over a period and have low initial charges. However, a business banking account is just that! If you send invoices and get paid by BACS or cash then your normal business bank account is all you need to run your business. However, if you want to be able to take electronic or card payments, online, over-the-phone or in your pop-up or shop you need more.
To be ‘open’ 24/7 online and for sales then you need to be able to accept credit and debit card payments automatically. This is done using access to a Payments Service Provider (PSP) who looks after the rules and regulations, as well as the security, of the transaction for you. These rules are technical and can be tricky. If you use a service provider it means that no customer card details are retained by you/your website and you don’t have to carry the expense of meeting the hosting and data regulations.
However, it is not just a facility for collecting payments or using an electronic point of sale (ePOS) system – which may be mobile card reader or a till. You need a special account and services from the bank to do this. For sales, you need ‘merchant services’ and a merchant bank account – this is a bank account which manages the transactions in between the customer and the business bank account.
How does it work?
Simply put, your ‘front-end’ of the PSP system provides a payment gateway embedded in your website – the online system or mobile card-reader or till, takes the card details or reads the chip directly into the secure transaction server through an online secure link or other connection. The PSP then checks the card details against the customer records for that card, conducts credit risk/fraud assessment and then takes the payment from the customer. The money is passed into your, or a collective, merchant account and then the cleared funds are sent into your account.
So, let’s look at options for each banking element that you may need;
- bank accounts,
- online/eCommerce shops,
- credit and debit card payments gateways (hardware and software),
and how these work with a Merchant Account and your business account and any accounting software.
Remember! Financial details and customer transactions need a higher level of security than many web services provide – you can avoid having your own dedicated servers and security systems (as well as accreditation from the regulators) by using an internet PSP. We will then look at what security and data rules must you have in place to use the systems to trade and some tips and suggestions of new capabilities and their costs.
For more about accounting packages see our page outlining some of the software available which can generate your invoices, integrate with your bank accounts and provide reporting for the tax office.
Despite the online application systems and headlines, don’t think these are simple to set up if you have a slightly ambiguous credit history – someone who has been in the military and moved a lot or deployed, kept addresses at a parent’s home and/or utilities in a spouse’s name etc. It took me 8 weeks to open an account with the same bank I’d had a personal account in for over 35 years! Even some of the leading online services require you to take into a branch all the documentation after applying online.
The chief reason for this delay is Anti-Money Laundering rules which look very carefully at businesses to ensure they are not set up to ‘clean’ money. Another important reason is the separation of private and business banking in the leading banks – they can’t easily share information and their systems are old so you are treated as a new customer even if they are your personal bank. To some extent, I’m afraid you just have to live with it.
So, how do I choose a business bank account?
Try searching online and look for the best deal for you – make sure you understand the cash and cheque handling and paying in rules because the internet PSP can be very attractive but you could incur quite high charges for any cash or cheque transactions. Some of the high-street banks still have local business banking support centres and this can be useful.
Check out this comparison site however, there is no alternative to a little personal research if you have anything other than an internet banking requirement.
Merchant Banking Services
As we explained, you need these services but not necessarily your own account and some payments providers are able to provide a full service – we cover some of those later.
It can take several weeks to agree merchant account services and the bank will often require a copy of your business plan and expected income and transaction levels – see our business planning section.
Internet Payments Service Providers (PSP)
Internet PSPs are an alternative to the high-street banks and are part of the “challenger market”. The great advantage of PSPs is that many do not require you to have your own merchant account and you can form a merchant agreement with the PSP. They essentially provide you with a secure electronic payments system over the internet.
In addition, these challengers to the traditional banks often provide additional add-on or integration capabilities, some of which we’ll cover later – what’s not to like!
One the key things to decide in running your e-Commerce business is the customer journey – the experience your customer has when trying to buy your services or goods.
If you’re starting an online shop it’s pretty easy:
- they shop,
- they put things in an eCommerce basket,
- they travel to checkout on a click and they……
- get routed to a secure payments portal (your PSP),
- they enter their card details, get confirmation that the payment has been made from the PSPS, then…..
- drop back into your website on a ‘return URL’ and your software generates ‘thank you for your purchase’ messages and send a receipt etc.
This is a classic Amazon style journey for your customer – if you use WordPress to build your website (the most popular and flexible content manager and web builder, which is free, and which has loads of ‘plug-ins’ for everything) then there is a highly functional shopping package and lots of others – most of them ready integrated with PSP plug-ins. This site is built in WordPress, as are millions of others around the world.
Electronic Point of Sales (ePOS) systems
If you’re running a pub, market stall or restaurant you might want to use a mobile system for orders and payments. One example might be an iPad based point of sale (POS) system that helps independent businesses to grow, by allowing business owners to:
- Serve more customers in less time through our intuitive, easy to use iPad app that is customisable to your business’ needs
- Get a deeper understanding into your business by tracking sales, stock and customers in our Management Portal
- Reward customers so they keep coming back for more through in-built loyalty module
- Save time when doing admin tasks through our integrations with accounting platforms
Like the more modern solutions, search online for a system that works across your IT platforms and connects to a payment provider for seamless operations.
So now you have head around your web portal and its sales system – there are several different internet PSPs available and some come as packages with other systems. The most common online systems are:
(click on the titles or logos for links)
Implementation achieved in hours with no advanced technical requirements and often a simple plug-in on the website. Getting your own merchant account is not required, and PayPal allows payments without the collection of the person’s data. PayPal is inexpensive and quick to install but is not the cheapest of systems because of the charging structure.
Online payments, virtual terminals and other payments as well as merchant account support. SagePay is a simple and inexpensive system which can be integrated with your site easily. Sage can also integrate with Sage accounting software.
Online Payments, Virtual Terminal or Pay by Link to provide your customers with fast and simple ways to pay using major credit and debit cards as well as PayPal through your website. Simple to understand pricing plans to offer more choice and flexibility to suit your business.
Stripe is a capable mobile and online system which can be integrated with most modern websites and is often ready-to-go in WordPress plug-ins. Stripe’s strength is its mobile interface for smartphones.
Google Wallet is a good tool. Relatively simple to set up and uses Adwords (Googles advertising support) for promotions. Google also has several options for integration but hasn’t really taken off in the UK. Google capabilities may help you with marketing and promotion.
The high-street banks also provide systems but they require a merchant account and integration, the easiest is Barclay’s. The key issue is that the Banks require a merchant acquiring account which could take many weeks to set up.
Who and how do I choose?
Essentially, it’s about the number and size of your transaction per month and, a BIG AND, the other capabilities you might wish to use – machines, eCommerce software, your type of sales etc.
Charging mechanisms by PSPs vary and what is best for you will depend on a few factors: the payment companies usually charge a few pence for each transaction and, a percentage of the value of the transaction. Therefore, if you sell few expensive things the best will have low percentage charges, whereas if you expect frequent smaller transactions the better the low transaction cost solution will become.
Thankfully, a great FinTech company has come up with a comparison site on two key elements of this section on Merchant Accounts and Payments for your deliberation!
Have a look at Payment Brain and try their handy price comparison tools to find out how much each leading provider would cost to process your volume and size of transactions.
However, note that some of the service providers are not on there and all have different advantages which can impact on the basic costs of a straight volume/size = price judgment. Basically, you need to think about it a little before deciding to contract to a provider.
Security and payments regulatory compliance – ‘PCI-DSS’
Payment Card Industry – Data Security Standard (PCI DSS) is a proprietary information security standard for organizations that handle branded credit cards from the major card schemes including Visa, MasterCard, American Express, Discover, and JCB. Payment security and fraud reduction are two of the top priorities for you to be regulatory compliant and not face large penalties. The PCI Standard is mandated by the card brands and administered by the Payment Card Industry Security Standards Council. The standard was created to increase controls around cardholder data to reduce credit card fraud. Many of the PSPs have support and accreditation systems for you and handle these aspects for small firms.
Don’t forget to choose an accounting application which works with your bank account to help keep records and file your tax returns. Reda more about accounting applications.