CTT in the News

Payment Processing and Validation – challenges and solutions

Baker Tilly
Payment Processing and Validation is an area of critical and growing importance to the charities and education sectors and yet it is so often not given the level of priority and attention it warrants. For charities, their growth inevitably means more donations and more payments from different trading activities to process. For the education sector more courses and different types of courses and funding options for students means more payment types and more processing challenges.

Up-to now, the Charities and Education sectors have relied on traditional back office processing systems using card terminals and manual processing systems. Other forms of payment such as cheques and regular payments by direct debit and standing order are quite often out-sourced or simply taken to your high street branch for them to process. As a result, it has been historically difficult to achieve any significant cost savings or efficiencies, even for organizations with multiple sites or shops or centres for their activities.

The Charities and Education sector are now faced with the challenge of the CHIP and PIN programme. This is the new increased payment processing and validation security provided by the Worldwide EMV (“Electronic Merchant Validation”) programme. The implementation of this programme will be accompanied by changes in the card scheme rules increasing the amount of information required to validate each card payment.  These changes can only increase the back office administration and other costs for users.

These are some the challenges facing the Charities and Education sectors. The solutions, however are already here and it is thanks to the Internet.

The Internet has until been associated with fraud, a lack of trust and security and a general reluctance to give credit card details on-line. This attitude has and is changing rapidly as more and more people realize that the Internet is actually very secure and efficient. The internet technologies developed to enable people to pay on-line, are now used throughout the high street by major retailers to process physical payments at the counter and back office payments arriving through the post. However, few charities or educational organizations realize that these systems are available for charities at very low cost.

The demand for these systems in the retail sector came out of the arrival of payment aggregation. This is the aggregation by a retailer of all the payments processed by all of it’s stores or petrol stations to enable it to negotiate better rates, card processing equipment and communications costs and to reduce the accounting and back office administration tasks and costs associated with. The Internet has just recently accelerated and improved this and the term –Virtual Payment System was created. In a large supermarket chain or retail franchise, with card turnover in excess of £1Bn, a 0.01% reduction in payment processing fees, due to the aggregation of card payment contracts across all outlets of its business, yields savings of some £100k per annum. 

The Charities and Education sectors face a similar challenge and significant savings can now be achieved on finance and communications costs. How many charities aggregate their card or DD payments across their own internal departments or national sites/ shops, let alone club together to aggregate multi-charity payment flows to secure lower processing charges or upgrade their systems? How many educational organizations process payments for short courses and evening classes through their computer networks in real time rather than using dozens of card machines all connected to fixed telephone lines?  How many have thought about the potential savings, which could be achieved if you could process all your payments and donations through any office PC in any charity office using your existing computer network?

The development of faster and lower cost telecommunications facilities, real time payment validation and authorization has allowed retailers to lower the fraud (and other) risks inherent in transaction processing.  They have therefore been able to negotiate lower processing charges from banks based upon this risk reduction.

The Charities and Education sector can take advantage of all the work that has been done in the retail sector, and with banks, by “jumping on the band-wagon” of existing technology and pre-negotiated rates – which make the standard “charity rate” appear high – for secure, real-time but aggregated internet based processing systems. Any organization can now have their own Virtual Payment System, which can be accessed by an unlimited number of people from an unlimited number of offices.

These payment processing facilities can be used to process direct mail appeals in-house, random payments collected across a string of national locations, lotteries, retail services and to back-up telephone fundraising activities, and of course integrated into their websites.  For educational establishments, the system can process one off payments of courses fees as well as process regular payments by direct debit as well as recurring debit and credit cards. The expected benefits should be lower processing charges and communications costs, real time and centralized data processing, reduction of multiple system data entry, faster error processing and refunds and much faster reporting and most important of all  increased security.

James is the Finance Director of Charity Technology Trust

James Redhead
www.ctt.org