As detailed in the first section of this article, a client needed to establish a merchant account for his e-commerce site. A search on "Where can I get a credit card merchant account" yielded over three million hits - my client was stumped. He left it to me to find out everything I could about the subject and report back.
September 20, 1999
My first contacts were with the top retail banking institutions in the UK. Most UK traders have their current accounts with one of only a handful of different banks. All were willing to talk to me and were to varying degrees, happy to send me details of merchant accounts for my client. I even went to branches of the top two banks to "cold-call" them and see what they could offer. One bank gave out an enormous book with loads of checklists and even a floppy disk with sample business plans and all sorts of other advice as well. All fine and dandy, but there was nothing at all about starting a merchant account included, so had they listened to me when I was talking to the person behind the enquiry desk? The "business adviser" at the other bank I called into smiled at me a great deal, nodded sagely and as soon as I mentioned wanting a merchant account referred me to the area manager, saying, "We can't do that".
Here then is the first and probably the biggest problem I found with UK banks and Internet traders - Communication, or rather, the lack of it. Over the last 18 months, all the banks have developed nice Web sites, and have obviously spent large sums of cash with advertising agencies. Some of the coolest Shockwave (and just about any other style of animation or movie file too), colour logos and animated buttons can be found on UK bank Web sites. Just hold on! Dig below the fluffy surface of most of these sites and in the end, there is a distinct lack of hard, live data and you will always be referred to a telephone number in some understaffed call centre. The most wired-up of all the banks have taken a big risk and offer you the chance to send them email too. In the end, we talked to all the call centres and sent emails to all of them that we could. At least the traditional method of the telephone worked - eventually. None of our emails to the banks have ever generated a reply!
I won't make you guess how many weeks we waited for them to get round to us (twelve weeks from the start to the end of the entire process), just know that when it comes to the Internet and e-commerce, these guys are still in the age of Shakespeare and the quill pen. It wasn't until after we and our client had both managed to get a merchant number and start trading that we realised delays like this are actually quite normal - in fact it seems we both did rather well in the time-taken stakes.
After three weeks, the bank we chose to work with sent a sales representative to see us. To his credit, he was very good at his job, guiding us through all the little wrinkles and problems we could expect as a merchant. We agreed on the package of cards we could take, what the card "swipe" machine rental costs would be, and a host of other small items of information about taking credit cards. The last thing he said was that the credit check would take two weeks and then we would be taking card payments.
After another three weeks and no more contact with the card company, we called them. After eight messages and another week of no merchant account and no contact, we finally managed to get the salesman to call us late one afternoon from his mobile phone. It seems that "the problem" was that the word "Internet" was included in the business plan. We convinced him to come to us and explain why this was a problem, but it would add another week's delay as he wasn't free just now. This is a second problem with UK banks - they don't consider the customer as king. Why should they? The only realistic competition they have is other UK banks!
Eventually we had that meeting with the salesman. Both my client and I were there at the meeting as we were now much more than two weeks into the so-called "two week" approval period and there seemed to be problems with our application that we didn't know anything about until we just happened to ask why there was a delay in the first place.
One of the most repeated messages in Internet marketing classes is that to maximise your returns you need to process your payments automatically and online as well as outsource your order processing to a third party specialist, which releases your time to undertake marketing activities, which is the activity that really counts. All this assumes you can take orders online in the first place. Our problem, it turns out, was that the card companies don't think that being profitable for several years (at the time, we had three years of over-performing our forecasts) was enough to justify giving us Internet merchant accounts. It also didn't matter that the Internet was the primary method of order collection and processing for our client's proposed new Web based business, nor that our client also happened to be a director of a very profitable multi-million pound public company whose stock is traded on the London Stock Exchange.
The very best deal our client could negotiate was that he could take credit card orders, but not take the card details online. The card company wanted his new enterprise to accumulate at least two years of off-line card trading and then for him to open a second merchant account that would then only be used for Internet-based transactions. At least two years delay and then the prospect of an extra account to maintain, another set of monthly fees to pay and in the meantime, no online trading was the prospect, and for a new online business that sounds like no prospect at all!
These experiences are not restricted to us either. Lastminute.com have after a year of trading admitted that it took all of that year to convince one of the top four UK banks to allow them card processing facilities on its Web site. Co-founder Martha Lane-Fox was highly critical of what she described as an "archaic" attitude. "They refused us on an entry level, even though we were better funded than most traditional start-ups I've spoken to. The banks are still in the dark ages," she said.
Whilst we were drowning our misfortune in the pub that evening after the meeting, we realised another thing that the card company salesman had told us. When we were speaking about the meeting, we realised that the salesman had also said: "Whilst we don't allow you to take orders and have your clients pay online, there is nothing to stop you processing them offline. In any event, we have no way of policing anything you do on your Web site".
What was he telling us?
The time limits and restrictions imposed on our client regarding online trading were of limited impact to us as most of our activities are high-value consulting and we can live with the off-line restrictions until the banks eventually get their ideas into the Internet age, but as for our client, it was another matter entirely. As an "e-business", the core of his customer payment strategy is to take credit cards and have the payments processed online. There was a stark choice for him - either he could trade online without card company approval and take the risk of being found out, or he could go offshore and locate his new business in another country altogether. Our client, after a few heartfelt days of reflection, decided to move his start-up e-business from the UK to the USA. The costs of trading there coupled with the attitude of the banks as well as the entirely different approach to start-up business and finance eventually convinced him. The impact of decisions like this on the emerging British e-commerce marketplace is very significant indeed. Some merchants have to break their contracts with the banks just to trade online. Everyone agrees that costs are higher than they should be and this has a real impact on the bottom line.
August and September of 1999 saw the UK Government embrace (in words at least), the Internet and e-commerce as the only way forward for the British economy. Significant words indeed, and whilst these words are all very well, when it comes to the actions that will back up this newfound commitment, the real issue is not so much the attitude of the Government, as that of the banks.
Brian Richman is a consultant and software specialist. Working in IT for over 25 years, he has led many large-scale projects and is Managing Director of a London, UK-based management consultancy. He has little time to himself, as he is part-time Webmaster for a printer supplies company and an academic (teaching about the Net and IT at degree level). He is currently working in e-commerce as well as developing strategies relating to the Euro for several American multi-national corporations.
Take a look at some of his Web sites: www.jettec.net or www.euroconsultants.org.
