5.5.4 Payment methods
The simplest way of accepting payment is by cheque. Payment by cheque restricts investment to UK residents and minimises the risk of money laundering. Societies that cash cheques before the share offer closes should place the money in an escrow account (see Section 5.6).
Payments using debit or credit cards require the society to establish a dedicated merchant account, and to establish systems that meet the Payment Card Industry Data Security Standards. However, the cost of establishing a merchant account may be prohibitive for smaller societies, or simply not an option for new societies without a financial track record.
Remote transactions (by mail or online) are allowed by most card payment processors, although the risk associated with such transactions is generally perceived to be greater than that of face-to-face transactions. However, the risk of fraud is comparatively low because it is impossible for a purchaser to resell withdrawable shares to anyone other than the society itself.
There are a number of online payment options. Debit and credit card payments can be processed through a dedicated merchant account, although the cost of security arrangements for online payment may be prohibitive for smaller offers.
BACs and Faster Payments allow people with internet banking arrangements to make one-off payments and to transfer money from their account to other bank accounts, quickly and easily. Faster Payments was introduced in 2008 and allows funds to be transferred within 24 hours, whereas BACs transactions take three days to complete. The main problem with these methods of payment is the potential difficulty of identifying the payee because there is no facility for them to provide their contact details. This problem can be addressed by ensuring that the application form has (or generates) a unique reference number so that applications and payments can be matched. The other problem with using these methods of payment is their reliance on the applicant correctly entering the society’s bank details when making the payment; any mistake may make it difficult to retrieve the funds.
PayPal is an online payment service that allows organisations and individuals to make and receive online payments without the need to exchange bank account details. Applicants do not have to have a PayPal account to use the system, or to make a complaint to the PayPal Resolution Centre. But its payment protection policy does not extend to property, so does not apply to the purchase of shares. A society selling shares through PayPal will need to establish a PayPal account, which will allow it to generate invoices, and to collect the name and address of the purchaser. There is a flat rate transaction fee, payable by the seller, currently 3.4% of the transaction value plus 20p. PayPal supports international payments in 24 currencies with the payment automatically converted into the recipient’s desired currency. There is no scope to block international PayPal payments, so a society needs to make special arrangements to ensure that it complies with its policies on applications by non-UK residents (see Section 5.8).
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