Atoa Leads The Revolt On Card Fees For the UK’s Small Businesses


It is five long years since the UK introduced its “open banking” reforms promising that new technologies would help consumers and small businesses get a better deal from financial services. The reforms have taken time to deliver on that promise, but innovation is now gathering pace, courtesy of businesses such as Atoa Payments, which wants to cut high-charging Visa and Mastercard out of the payments loop.

Atoa, which is today announcing the completion of a $2.2 million pre-seed funding round, is squarely taking aim at the two payment giants. Every time a customer makes a payment on their debit card, the transaction proceeds across rails controlled by Visa and Mastercard, points out Sid Narayanan, one of three co-founders of the company. He and partners Cian O’Dowd and Arun Rajkumar, previously founded Singapore-based fintech, KlearCard, which was acquired last year by Validus.

“That means the merchant has no choice but to pay fees of 1.5-2% on the transaction,” Narayanan says. “There are other issues too – merchants don’t actually receive the cash for one to two days, which causes cashflow problems, and card payment services providers typically want them to sign extended contracts that lock them in.”

To add to merchants’ frustration, the UK has a perfectly good payments alternative that costs nothing and settles the transaction immediately. The Faster Payments Service enables UK bank account holders to transfer cash to payees instantly at no cost to either side. In an ideal world, merchants would therefore ask all their customers – in-store or remote – to pay via bank transfer rather than card. But this isn’t practical, since setting up a bank transfer requires the customer to initiate and manage the transaction inside their banking app; consumers would baulk at the inconvenience of having to do that each time they make a purchase.

Enter Atoa. Its technology enables consumers to pay by bank transfer at the point of sale rather than by card – and to do so instantly, without all the usual administration required to set up such a payment. To make that possible, the merchant downloads Atoa’s app and then displays a QR code to customers; when the customer wants to pay, they simply have to scan the code, which then automatically sets up the payment inside their banking app – all they have to do is authorise it.

Consumers themselves need nothing more than a UK mobile banking app on their phone. Atoa’s technology uses a payment initiation API to connect the app to the merchant’s bank account, in order to issue an instruction to pay.

“We can lower the merchant’s fees by as much as 70% by cutting out Visa and Mastercard,” Narayanan adds. “We also save merchants money because there is no need to buy any payments hardware upfront, or to pay monthly charges to lease it; plus they get their payment instantly and there is no need to lock into a lengthy contract.”

In practice, Atoa’s charges start at 0.6% per transaction, substantially undercutting the card payment fees that merchants currently have to pay. Merchants processing high volumes of transactions will qualify for even lower charges – potentially as little as 0.3% per transaction.

There’s a huge market for the company to go at. There are more than 4 million small and medium-sized enterprises in the UK that currently rely on card payments from customers. All of them lack the size and power to negotiate better rates from Visa an Mastercard, and could benefit by switching to payments based on bank transfers. In the longer term, Atoa sees larger companies adopting its technology too.

One question is whether consumers will accept this new form of payment. Paying by card is such an ingrained habit that some customers may dislike being asked to pay in a different way. However, O’Dowd believes customers who understand merchants’ frustrations will be keen to help. “We need to build awareness, but people know how tough the high street is right now and they are keen to support small businesses.”

Certainly, the business seems to be gaining traction with merchants. Sign-ups have been growing at a rate of 100% a month since the company began offering its technology in June. “It is new for customers and it will take them some time to get used to it, but it’s very straightforward,” says O’Dowd. Atoa is regulated by the Financial Conduct Authority, he points out, which should reassure consumers; in any case, the company never touches their money – it simply instructs the bank to move money to the merchant.

The key will be to ensure people get familiar with using bank transfers rather than card payments. While there is already significant competition in the payments marketplace for small businesses, newer providers such as Zettle and Square, which have grown quickly, rely on card payments; this inevitably exposes merchants to Visa and Mastercard charges.

The company’s fundraising should help Atoa spread the word. The pre-seed round was led by Leo Capital and Passion Capital, and also included angel investors such as Matt Robinson, co-founder of GoCardless and Nested, and Moon Capital Ventures. Anil Stocker, the co-founder and CEO of MarketFinance, is working as an adviser to the company.



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