Everything about Card Payments

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3 Everything about Card Payments This guide will give you an insight into the card payment industry, how card payments work, how the services are charged for and how they are provided to merchants and resellers by NetPay. 1.0 The Market Market Size Market Growth Growth Summary The Services Payment Terminal Services Online Payment Services Acquisition/Merchant Services Roles and Responsibilities Issuers and Schemes Acquiring Bank Merchant Payment Gateway NetPay How it all fits together The Flow of a Transaction Charging Terminal Rental Payment Gateway Processing Acquisition Fee Authorisation Fee Premium Transaction Charges Ancillary Fees Charging Re-Cap Payment Terminal Services Online Payment Services Setting up Acquisition/Merchant accounts Setting up Terminal Leasing The Devil is in the Detail Reseller Commissions Compliance 23

4 1.0 The Market 1.1 Market Size Key Facts and Figures Payments Market* Of the 4.5 million businesses in the UK, 950,000 of them are authorised merchants with 1.2 million physical terminals in operation. 43 million UK adults hold a debit card and 30m a credit card. At the end of 2011 there were 60.9 million credit cards in the UK and 86.3 million debit cards. The average amount of cards that a cardholder has is 1.8 for debit and 1.9 for credit. The amount of personal spending on debit cards overtook the amount of personal spending in cash during million cardholders used their cards regularly, with an average spend of 117 per week. Each month there are on average more than 850 million purchases on credit and debit cards totalling upwards of 40 billion up from c.770 million transactions and a spend of 39 billion a year ago. Card fraud is on the decrease with the total UK fraud down from 535.2m in 2007 to 341.0m in The number of payments by cheque has decreased by 42% in the past 5 years with a further decline of 40% expected over the next 5 years. The majority of these payments have switched to card. Key Facts and Figures UK Businesses* There are 4.5 million private sector businesses in the UK. These businesses have a combined annual turnover of 3,100 billion (excludes financial and insurance activities and employment activities where data is not available on a comparable basis). Small and medium sized businesses (less than 250 employees) accounted for 99.9% of all enterprises and 48.8% of private sector turnover. Of these 99.2% were small (up to 49 employees), 0.7% were medium-sized ( employees). At the start of 2011, 62.4% of private sector businesses were sole proprietorships, 27.7% were companies and 9.8% were partnerships. * Data published by The UK Card Association and Department for Business Innovation and Skills.

5 1.2 Market Growth 2011 Million Billions Billions Number of private sector businesses in the UK* Of the 4.5 million businesses in the UK, 950,000 of them are authorised merchants with 1.2 million physical terminals in operation The number of UK private sector businesses has grown 20 by 1 million over the last 11 years. 15 With the current percentage of overall UK businesses 10 taking merchant accounts at 21% (4.5 million businesses 5 vs. 950,000 merchant accounts) if the net growth 0 of new businesses continues at the current rate (which Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 given the Government and Social focus on Debit Cards Debit Cards entrepreneurism there is a strong possibility this may increase) there will be roughly in the region of 19,000 new businesses looking for merchant facilities each year. There will also be considerable merchant growth within 24 the current 4.5 million existing businesses as solutions 20 become more convenient, flexible and as cheques 16 continue to be phased out. 12 * 8 Department for Business Innovation and Skills Business Population Estimates Mar 06 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Percentage of retail Plastic Cardsales made Cash and on other plastic payments cards (Including fuel, 3 month rolling average)* Million Millions Billions Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul Debit Cards Debit Cards Retail sales (high street spending) year on year monthly average* ATM Only Credit Charge Debit Billions Billions % 50% 40% 30% 20% 10% 60% 24 0% 50% % 30% 20% Billions % 4 Millions % Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Debit Cards Debit Cards 0 Mar 06 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Plastic Cards Cash and other payments % 50% ATM Only Credit Charge Debit 40% 30% 20%

6 Million Market Growth (Cont.) Average monthly expenditure Number of cards in issue at the end of 2011* (12 month moving average)* Billions Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Millions Debit Cards Debit Cards * Data 24 sampled from various reports published by the UK Cards Association. 20 ATM Only Credit Charge Debit Billions Key Facts and Figures UK Businesses* 4 The percentage of retail sales made on debit cards has now exceeded 50% and cards are now the favoured payment 0 mechanism Mar 06 over Mar 07 cash. Mar There 08 Mar is 09nothing Mar 10 to Mar suggest 11 Mar 12this trend will do anything but increase, especially with the continued increase in those businesses that reject cheques as an acceptable payment method. The continued increase in the volume of payments is particularly encouraging given the relatively modest movement in the total number of cards in issue over the past 7 years (it is fair to say the reduction in the number of credit cards is a sign of both banks and individuals dealing with the impact of the recession). 60% 50% 40% 30% 20% 10% Plastic Cards Cash and other payments 0% Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Debit Cards Debit Cards

7 1.3 Growth Summary The number of businesses in the UK is increasing year on year and therefore by default so is the demand for merchant services. The demand for merchant services will not only be from new businesses but also those within the existing 4.5 million who opt for card payment solutions as they become more convenient, flexible and cost effective as well as those who choose to move away from their existing provider. The usage of cheques continues to decline in favour of card payments. The percentage of retail sales made by cards is increasing cards are the new cash this is a real growth industry. Every business needs to take payments! NetPay is not limited to markets, verticals or industries the opportunity is frankly any business that wants to take card payments or does already and wants to improve the information they receive and the cost of processing.

8 2.0 The Services Whilst NetPay provide a number of services they all principally sit within 3 service categories; Payment terminal services. Online payment services. Acquisition/merchant services. 2.1 Payment Terminal Services Payment terminals are provided by NetPay and manufactured by Ingenico. NetPay doesn t currently provide terminals from any other manufacturers at the present moment. There are a range of terminals provided by NetPay, wired devices which plug in to a telephone line or broadband connection, wireless devices which use Bluetooth to get to a base station which is connected to a telephone line or broadband connection and mobile devices which use a GPRS signal to get to the acquirer. Each mobile terminal has a physical SIM card inside the device. These SIM cards are similar to those that are in an average mobile phone but are configured differently. Firstly, they are what are known as global roaming SIM s these SIM s use the strongest GPRS signal available ensuring the merchant has the best opportunity for connectivity to take the payment. They are also what are known as machine to machine SIM s (M2M) and only connect to a specified destination, they cannot be used as standard mobile or mobile data SIM s. The terminals can be supplied either with a monochrome screen or a colour screen. The colour screen devices are also supplied with Contactless technology to accept Contactless payments. Understandably there is a strong focus on encryption and compliance for payment terminal software. For the terminal to be used, the software must first be authorised and accredited by each acquirer. Each acquirer s processes and requirements are slightly different and it s not uncommon to be in a situation where a piece of software is accredited by one bank but not another. The accreditation process is managed with the acquirers by Ingenico. Each terminal is given a unique TID (Terminal ID). This is what is used to identify the device for the duration of its useful life. It is supplied to the acquiring bank as part of the process of setting up a merchant and making their service live. More specific detail regarding NetPay Payment Terminal Services can be found in the Payment Terminal Services overview. 2.2 Online Payment Service Online payment services are provided by the NetPay payments network which has resilient IP interconnects with the acquirer gateways to enable the processing of card payments. Our network is powered by Cisco and Dell. More specific detail regarding NetPay Payments Network can be found in the NetPay Payments Network overview. NetPay provide a series of options to take advantage of the NetPay online payments service. These consist of a feature called hosted form where the merchant will post the consumer information to a NetPay URL including the amount that is to be charged, the system will capture the card information and process the transaction on the merchants behalf.

9 2.2 Online Payment Service (Cont.) Another integration option is using the NetPay API, this is an XML interface that allows the merchant to integrate some or all elements of the NetPay service into their existing website or CRM. As well as the integration methods there is also a number of value added features available such as SchedulePay, our tool to setup recurring charges to consumers on a daily, weekly, monthly, quarterly or annually basis. Another feature is our tokenisation service, this enables merchants to store credit card information within the NetPay payments network and receive a token that can then be used for future transactions as and when required. This relaxes the compliance obligations on the merchant allow them to provide convenience for the consumer (the ability to make future payments without inputting card details again) without enduring the compliance obligations of storing these details on their network. More specific detail regarding NetPay Online Payment Services can be found in the Online Payment Services overview. 2.3 Acquisition/Merchant Services Acquisition/Merchant services are what enable a merchant to physically take a payment from a consumer s card through their card issuer. NetPay provide acquisition/merchant services through its ISO relationship. This arrangement is better detailed in the Roles and Responsibilities section below. Every merchant must have a merchant account to take payments using debit or credit cards. When a merchant has a merchant account they will be provided with a MID (merchant ID). A MID that is used for terminal based faced to face payments may not be used to take online payments, a separate MID is required to be able to trade online. When taking MOTO (mail order telephone order) payments whilst performed online through a virtual terminal, these usually can utilise the same MID as a physical payment terminal, they must not use the online payments MID as this will be considered an unsecure transaction (as there is no 3D Secure as is now common with online payments) and an additional charge will be levied. SchedulePay also uses the same MID as the MOTO virtual terminal. In the case of American Express, a separate set of MID s is required for both payment terminal and online services, a MID that is used for all other cards cannot be used for American Express. Every MID will have a series of TID s (terminal ID s as defined above) attached to it. Whilst online payment services are not provided with a physical terminal they are still assigned TID s which are attached to a MID. A TID is actually less about a physical terminal and more about the number of concurrent payments. If an online merchant expects to be taking 5 transactions at the same time they would need 5 MID s, it works in the same way as a physical terminal might for example, if you had 5 customers in a retail store wanting to pay at the same time you would also need 5 terminals and 5 TID s to cater for them. More specific detail regarding NetPay Acquisition/Merchant Services can be found in the Acquisition/Merchant Services overview.

10 3.0 Roles and Responsibilities 3.1 Issuers and Schemes The banks that provide cards to consumer and business customers are known as issuers. Whilst there are a number of issuers across the world they will use one of a small selection of card types such as Visa, Mastercard and Maestro, these card types are known as schemes. Banks or other eligible financial institutions become a member of these schemes. By becoming a member of the scheme, the member then gets the possibility to issue or acquire the payment transactions performed within the scheme. 3.2 Acquiring Bank An acquiring bank is either a bank or eligible financial institution that processes credit and debit card payments on behalf of merchants. The term acquirer simply refers to the process of acquiring funds from the consumer or business on behalf of the merchant from the card issuer that is part of a card scheme. NetPay is not an acquiring bank, it instead operates as what is known as an ISO an independent sales organisation accredited by the schemes. Being an ISO enables NetPay to consume wholesale services from our acquiring bank partner. 3.3 Merchant The merchant is the seller, the person responsible for providing the product or service to the consumer of business and then using the services provided by their acquiring bank to take the card payment from their customers. 3.4 Payment Gateway Payment gateways are commonly referred to when talking about online payments. A payment gateway is effectively the service provider that enables the merchant to submit transactions from their website or payments application using a hosted form or API provided by the payment gateway to their acquiring bank. Payment gateways are effectively the middle party interconnecting with the banking gateways and providing the tools and utilities that enable merchant s access to the acquiring bank to process the transaction. NetPay are a payment gateway provider, operating our own infrastructure and interconnects to the gateways.

11 3.5 NetPay NetPay takes responsibility for the largest proportion of the complexity involved in delivering a payment solution looking to the acquiring banks to simply process those transactions that are submitted to them. This enables NetPay to control the critical value adds that give our merchants and resellers the ability to differentiate in the market when going up against the major High Street banks. Key Facts and Figures Payments Market* Commercial proposition including commissions and revenue share arrangements. Operation of the payment services. Design, build and operation of a resilient, PCI DSS Level 1 compliant payments network for online payments. Supply and configuration of terminal equipment. Management of global roaming GPRS SIM s for mobile devices. Equipment leasing partnerships. Customer billing services (as required). 24x7x365 telephone customer service (as required). Relationships with 3rd party field engineering resource for terminal maintenance, repair and replacement.

12 4.0 How it all fits together In certain situations the issuer and the acquiring bank might be the same organisation. For example, a consumer or business who bank with Barclays who buy a service from a merchant that uses Barclays as an acquirer would create a situation where both the issuer (the bank that provided the card) and the acquirer (the bank that enabled the merchant to take the card payment) are the same. Many UK banks have sought to divest their interest in the acquiring banking divisions of their business. RBS sold the majority of their stake in Streamline/Worldpay in August 2010 to private equity and HSBC sold their remaining share in HSBC Merchant Services to Global Payments in June In these cases certain transactions that would have once been fulfilled by one party as the issuer and the acquirer are now being managed by separate parties. In most instances the acquirer and the issuer will be different organisations. To demonstrate, the diagrams below show situations where the acquirer and issuer are different and where they are the same. cquirer Different Different Issuer & Acquirer Issuer & Acquirer The Same The Same Issuer & Acquirer Product / Service Product / Service Cardholder Merchant Cardholder Merchant Settlement of funds Acquisition Fee Charge Payment Payment Charge Settlement of funds Issuer Interchange Fee Request for payment Acquirer Issuer & Acquirer Acquisition Fee Settlement of funds Scheme Fee Scheme Fee Scheme Scheme

13 4.1 The Flow of a Transaction The path of a transaction varies between online and payment terminal services. The diagram below shows the route of a payment terminal transaction. The card information including the PAN (primary account number, known as the card number) is captured by the terminal device and encrypted before being sent off for processing. Where dialup is being used the transaction will be sent directly to the acquirer, where IP connectivity is being used (mobile or broadband) it is sent to the gateway and converted to X25 (the technology used by the acquirers) before being sent to the acquirer. Return responses are then passed back through the chain to the device where the result is presented to the consumer and the merchant. Most terminals supplied by NetPay will use what is known as APACS40. APACS40 simply means the transaction is authorised and settled with the bank at the time of being requested. Traditionally many terminals have used APACS30/29. APACS30/29 is when the transaction as has been authorised (APACS30) but is not settled immediately (the money is authorised but not effectively debited). All transactions from that merchant are stored and then settled usually overnight (APACS29). Data regarding the transaction is fed back to NetPay for reporting purposes from the acquirer. The data that is retrieved does not Payment include sensitive Terminal information Transactions that is subject to compliance such as the PAN. Transaction Data Card Terminal NetPay Network Gateway Acquirer Broadband / GPRS / IP Request and Response Dial Up Request and Response

14 4.1 The Flow of a Transaction (Cont.) The diagram below shows the route of an online transaction. The critical difference between an online transaction and a terminal based transaction is that the transaction flows through the NetPay network before being passed to the acquirer. This is essential for NetPay to be able to integrate the services with our Revolution platform and provide access to process payments through our hosted form and API as well as value added services such as Tokenisation and SchedulePay. In this instance the card details (including the PAN) are encrypted and stored in the secure, PCI DSS level 1 certified NetPay payments network before being sent to the bank for processing. Return responses are sent back to the NetPay payments network from the acquiring bank. There is no need to capture transaction information from the acquirer for the purposes of online payments reporting as the transaction has passed through and be logged by the NetPay network. This enables NetPay to support merchants who wish to use other acquirers outside of the NetPay ISO relationships and continue to provide reporting in Revolution. Online Transactions All transactions flow through the gateway which converts IP requests into X25 (the technology used by the acquirers). Online processing services use APACS30/29. Payments are authorised (APACS30) and then settled each evening (APACS29). Hosted Form API or Virtual Terminal NetPay Network Gateway Acquirer

15 5.0 Charging There is a number of charging factors involved in processing card payments. In most instances the various charges are grouped together to make it as easy as possible for the merchant to understand and for the NetPay wholesale and indirect resellers to sell. Although most of the same principles apply with both payment terminal and online payment service charges they vary ever so slightly. The charges a merchant should expect for online payments; Online Payments Online Payments Acquisition Fee Premium Costs Acquisition Fee Premium Costs Payment Gateway Processing Fee Authorisation Fees Payment Gateway Processing Fee Terminal Payments The charges a merchant should expect for terminal based payments; Terminal Payments Acquisition Fee Authorisation Fees Premium Costs Acquisition Fee Premium Costs Terminal Rental Authorisation Fees Terminal Rental Authorisation Fees

16 5.1 Terminal Rental This is a charge levied by NetPay for use of the payment terminal device. With payment terminals except in situations where the equipment has been bought outright a monthly lease fee will be charged by the NetPay leasing partner based on the type of terminal chosen by the merchant plus any value added services such as enhanced care. There is normally a setup charge for the payment terminal. VAT is charged on this element of the service. 5.2 Payment Gateway Processing This is a charge levied by NetPay for online merchants using payment gateway services to allow a merchant to use our hosted form and/or API to get access from their website or payments application to the acquiring bank using the NetPay network and gateway interconnects. This is usually charged at a monthly fee with a number of transactions included and then a pence per transaction for all successful transactions over and above the packaged allowance irrelevant if it is a debit or credit card. There are also a number of value added services such as Tokenisation and SchedulePay, these VAT is charged on this element of the service. 5.3 Acquisition Fee This is a charge that is levied by the acquiring bank to debit the money from the issuer on behalf of the merchant. These costs vary depending on the type of card and the scheme it belongs to. For credit cards these charges are a % of the value of the transaction, for debit cards this is charged on a pence per transaction basis. It is a misconception that the revenue generated from these charges is retained by the acquirer or the ISO (NetPay), in fact the largest proportion of the revenue generated is paid to the issuer of the card and the scheme the card belongs to. The charge that is paid to the issuer is known as the interchange fee and the charge from the scheme is known as the scheme fee. It is not unusual for these charges to account for more than 90% of the charges before the rate is provided on a wholesale basis by NetPay. These charges are levied whether the payment service being utilised is via a physical terminal or online. The only difference is that for online payments the merchant can choose any acquiring bank to clear the transaction on their behalf and whilst we would urge them to use the NetPay ISO this isn t mandatory. With physical terminals it is necessary to use the NetPay ISO acquisition services as the configuration for this is hard coded into the terminal device. The charges for acquisition vary slightly per scheme, NetPay blend these costs to remove unnecessary complexity for the merchant. It is normal for an acquirer to charge a setup fee for an acquisition/merchant account. When setting up an acquisition/merchant account as part of the sales process the merchant will also be required to sign a Direct Debit on behalf of the NetPay banking partner. The bank will use this Direct Debit to charge for the acquisition services. The charges that are debited are those that are specified on the order form allowing customisation based upon the opportunity and your margin requirements. VAT is NOT charged on this element of the service.

17 5.4 Authorisation Fee This is a charge levied by the acquirer to utilise their network to get access to the card issuer. This is charged on a pence per transaction basis and is only charged when a transaction is authorised, not when a transaction is declined for any reason. These charges are levied whether the payment service being utilised is via a physical terminal or online. As with the acquisition fee though an online merchant is free to choose their acquiring bank, this charge will continue to be levied but the service would not be provided through NetPay. The authorisation fees are billed using the same Direct Debit mandate in place for the acquisition charges. VAT is NOT charged on this element of the service. 5.5 Premium Transaction Charges There are a number of situations where it becomes necessary to charge a premium for transactions. Premiums are levied by the acquiring bank in various circumstances and on behalf of issuers and schemes. The premium transaction charges are billed using the same Direct Debit mandate in place for the acquisition charges. Premium charges are as follows; Customer Not Present There is a charge levied by Mastercard and Visa when a payment is taken through a payment terminal and the customer is not present. This is because the transaction is considered to be higher risk. This charge is an increase % for credit card transactions and an additional charge in pence for debit cards. Magnetic Stripe When a merchant uses the magnetic stripe rather than chip and pin the transaction is again considered higher risk and an higher acquisition rate is charged. This charge is an increase % for credit card transactions and an additional charge in pence for debit cards. PAN Key Entry PAN stands for primary account number, it is effectively the long card number. When neither the chip and pin or magnetic stripe can be used and the card number is input directly in to the card terminal there is an increased charge because the transaction is deemed higher risk. This charge is an increase % for credit card transactions and an additional charge in pence for debit cards. Online (Secure) For online payments even those that are secured by 3D Secure there is an increase charge. This is because all online payments are considered higher risk. This charge is an increase % for credit card transactions and an additional charge in pence for debit cards. Online (Non-Secure) When online payments are not performed using 3D Secure they are considered to be non-secure transactions. Non secure transactions attract a higher premium that standard online transactions as they are higher risk. This charge is an increase % for credit card transactions and an additional charge in pence for debit cards.

18 5.5 Premium Transaction Charges (Cont.) Inter-regional When debit or credit card payments are made in the UK using cards that were issued outside of the EU it attracts what is known as an inter-regional charge. This charge is an increase % for credit card transactions and an additional charge in pence for debit cards. Paper Processing In the event a merchant does not use an electronic terminal and is required to use paper based card processing there is a considerable increase in charges. Paper based was one of the original methods of processing card transactions but requires considerable administration and is deemed particularly high risk as the availability of funds is not being confirmed at the time of the transaction. This charge is a material increase % for credit card transactions and an additional charge in pence for debit cards. VAT is charged on this element of the service. 5.6 Ancillary Fees Merchants may incur a number of other charges as part of operating their merchant account. These may consist of the following; Minimum Monthly Service Charge Acquirers impose what is known as a minimum monthly service charge. This is effectively the minimum amount they require each month to maintain the acquisition service/merchant account. If the total cost of transaction processing to the merchant exceeds the required amount the minimum charge will not be levied, if it is slightly less a balancing charge will be made. The NetPay ISO minimum monthly service charge is usually 10 but can on occasion be varied depending on the structure of the deal. Chargebacks If a consumer or business does not recognise a transaction they are likely to speak to their issuer and the card scheme and charge back the transaction. There is a charge levied to the merchant by the acquirer in the event of chargeback irrelevant whether the charge back is justified or not. This charge is 15 per chargeback. AVS Calls If at any time when making a payment through a physical terminal the merchant decides or is required to verify the address of the cardholder over the phone there is a small one-off charge of 1.

19 5.7 Charging Re-Cap The following tables detail the charges a merchant would receive when setting up services through NetPay Payment Terminal Services Charge Recurring/ Non-Recurring Billed By Terminal Setup Fee Non-Recurring Leasing Partner (except where the devices have been bought outright by the reseller/merchant*) Monthly Rental Fee Recurring Leasing Partner (except where the devices have been bought outright by the reseller/merchant*) Value Added Services Recurring Leasing Partner (except where the (eg: enhanced care) devices have been bought outright by the reseller/merchant*) Acquisition Fees Recurring/Non-Recurring Charges Acquiring/Merchant Bank based upon volume (except in instances where it falls below the minimum spend level and the minimum spend is charged), no multiple charges per transaction but recurring in the sense that they will continue to be charged each month dependant on sales/. Authorisation Fees Recurring/Non-Recurring Charges Acquiring/Merchant Bank based upon volume (except in instances where it falls below the minimum spend level and the minimum spend is charged), no multiple charges per transaction but recurring in the sense that they will continue to be charged each month. Premium Transaction Recurring/Non-Recurring Charges Acquiring/Merchant Bank Charges based upon type of premium transaction. No multiple charges per transaction or event (i.e. charge back) but recurring in the sense that they will continue to be charged each month.

20 5.7.2 Online Payment Services Charge Recurring/ Non-Recurring Billed By Online Services Setup Fee Non-Recurring NetPay when signed by an indirect reseller or by the wholesale reseller directly in the case of a wholesale relationship. Monthly Base Package Fee Recurring NetPay when signed by an indirect reseller or by the wholesale reseller directly in the case of a wholesale relationship. Value Added Services Recurring NetPay when signed by an indirect (eg: SchedulePay, reseller or by the wholesale reseller Tokenisation) directly in the case of a wholesale relationship. Transaction Overage Recurring/Non-Recurring Charges based NetPay when signed by an indirect upon type of premium transaction. reseller or by the wholesale reseller No multiple charges per transaction or directly in the case of a wholesale event (i.e. charge back) but recurring in relationship. the sense that they will continue to be charged each month. Acquisition Fees Recurring/Non-Recurring Charges Acquiring/Merchant Bank based upon volume (except in instances where it falls below the minimum spend level and the minimum spend is charged), no multiple charges per transaction but recurring in the sense that they will continue to be charged each month dependant on sales/. Authorisation Fees Recurring/Non-Recurring Charges Acquiring/Merchant Bank based upon volume (except in instances where it falls below the minimum spend level and the minimum spend is charged), no multiple charges per transaction but recurring in the sense that they will continue to be charged each month. Premium Transaction Recurring/Non-Recurring Charges Acquiring/Merchant Bank Charges based upon type of premium transaction. No multiple charges per transaction or event (i.e. charge back) but recurring in the sense that they will continue to be charged each month.

21 6.0 Setting up Acquisition or Merchant accounts Whilst this will change during 2013 applications for acquisition/merchant accounts are still done using traditional paper work and ink signatures. These application forms will aim to capture all the necessary detail about the merchant so the appropriate checks can take place and an assessment of the risk of providing a card service to that merchant can be made. Assessment of risk is clearly critical and it s important to understand what are deemed to be high and low risk businesses and industries. There are certain industries that the banking partners that NetPay utilise as part of our ISO relationship wish to distance themselves from. More details about risk can be found in the NetPay Guide to Risk. ID and verification is required (commonly referred to as ID&V) when signing up a new merchant. Acceptable ID&V is a copy of a utility bill in the name of the business applying and a photocopy of a passport or driving license of the principal of the business. These ID&V documents must be supplied with the application form for processing. When the paper work is submitted to NetPay it will be be forwarded to the acquiring bank and a decision of acceptance or rejection (based on the assessment against the risk criteria) will usually be made within 24 hours. When it has been accepted the service is usually live within 72 hours. Acceptance rates for services that are to be used for physical payment terminals and online payment terminals differ, online payments are considered higher risk and those businesses that focus solely on trading online will go through more stringent risk assessment. Consequently, acceptance rates for acquisition/merchant accounts for use with online payment services are less than physical payment terminal services. It is essential when selling to any merchants that you follow the guidelines specified under the Customer Due Diligence (CDD) requirements. More details about CDD can be found in the NetPay Guide to Risk. Whilst NetPay provides more flexible access to these services it is important to remember that you are selling a financial service. It is absolutely essential that you make the customer aware of all the charges involved in setting up and operating the services and it is important you go through a process called know your customer. More details about what to look for as part of knowing your customer can be found in the NetPay Guide to Risk.

22 6.1 Setting up Terminal Leasing Terminal devices that are not bought outright and are charged on a monthly basis are done so through a terminal leasing arrangement. Our terminal leasing partner is an organisation called LDF, Lease Direct Finance owned and operated by Investec. The policies are administered on our behalf by an intermediary called VLS. VLS assuming responsibility for billing and collecting the monthly lease charges from the merchant. Where possible NetPay prefer to accept lease documentation electronically. The NetPay Revolution platform uses Echosign, when the required information for the lease agreement has been populated the system then has the capability to send out the agreement by which can then be electronically signed by the merchant. Lease applications are sent to the leasing partner each Friday afternoon. It is important to note that when lease documentation is submitted at the beginning of the week it will be the end of the week before this is submitted to the leasing partner. From a merchant experience point of view this should present an issue, all applications for <5 terminals are accepted automatically.* Where possible, we submit these applications to the leasing partner electronically. This improves efficiency and reduces the risk of human error when applications are re-entered. Paper copy lease agreements that are received on a Friday may not be processed until the beginning of the following week. *NetPay reserve the right to refuse applications. 6.2 The Devil is in the Detail One of the most important things to remember when filling out acquirer/merchant account application forms with merchants is that the devil is in the detail. Make absolutely sure you have all the mandatory information completed before submitting the documentation to NetPay. If the details aren t completed the service will not progress. There are no exceptions to this rule and missing information cannot be excused, the mandatory information is an essential part of our compliance and the fulfilment of our obligations with the acquiring banks and leasing partners. When submitting applications for services check you have the following; The Customer Due Diligence information capture (CDD). ID & Verification (ID&V) That is a utility bill and some photo ID of the Director/Owner/Principal. A signed lease agreement (for terminal devices). Signed electronically or manually. A signed acquisition/merchant account application form. Signed Direct Debit Mandates for the lease agreement (if applicable) and the acquisition services (this is outside of any of your own Direct Debit mandates you want them to sign for any other charges you levy). You cannot use just one.

23 7.0 Reseller Commissions Commissions are paid for leased devices, online payment services (indirect resellers only) and acquisition/merchant services at the end of each month for the preceding month. For example, a terminal device that was sold during August would have the lease revenue rebated at the end of September. It is important to note that the month is determined by when the customer went live, not when the sale was made and the order put on the system. 8.0 Compliance It is a misconception that only larger businesses need to worry about PCI DSS compliance. Every business that takes card payments must be PCI compliant. For smaller requirements it is usually possible to go through a self-certification process where a series of questions regarding behaviours when taking and managing card payments are asked online and certification is provided. PCI DSS compliance and certification is usually instigated by the acquirer (even in situations when the acquisition service is provided through a NetPay ISO relationship) and an annual or monthly charge is levied by them for this service. NetPay also provide the opportunity for merchants to gain PCI DSS certification through an online selfcertification process. The certification can then be provided to the acquirer as required. More details about compliance and the Do s and Don ts can be found in the NetPay Guide to Compliance.

24 NetPay Solutions Group Limited T W