Scrapping Card Fees

A bureaucratic waste of time or a benefit to consumers?

Rob Crutchington, Director at Encoded, discusses the changes for consumers in light of the latest government legislation banning credit and debit card surcharges and who will really benefit as a result.

According to the Treasury, in 2010 the total value of surcharges for debit and credit cards was an estimated £473 million¹ but the news is that this is set to change. From 13th January 2018 new legislation under the Payment Services Directive (PSD2)² will make it illegal for merchants and retailers to charge customers more for using a credit or debit card in the EU.

The original purpose of splitting out card’s fee was to make the cost of using a card transparent to the card holder. Often credit cards incur a greater fee than debit cards. For example, with theatre and concert booking sites, airlines and take-away food apps typically adding an extra charge to any purchases made using a card. As do some local councils and government agencies.

Why the surcharge?

Businesses argue that they face extra charges when someone pays by credit or debit card and so the rationale was that they could pass on the costs for processing card payments.
Typically banks charge companies higher rates to process a credit card, therefore businesses have been allowed to add a surcharge accordingly. In fact, many smaller shops and businesses often have a minimum spend of £5 or £10 for payment by card, this can now be overcome by switching to contactless payments.

What does this change mean for merchants?

Adding surcharges will be illegal under the new directive, however, as consumers switch away from using cash many merchants and retailers will not want to risk losing their business and will need to reconsider their practices.

It’s a difficult decision. Under the Consumer Rights Act³, businesses can only pass on charges that genuinely reflect their costs and it will be up to Trading Standards officers at local authorities to act if they receive complaints about those shops who continue to impose card surcharges after the 13th January 2018.

However, Trading Standards has limited resources and it may be that many small retailers used to imposing card surcharges under the current rules may continue to do so after the new deadline. It’s also likely that since smaller retailers are often local, customers are happy to pay a premium price for convenience. For bigger, national retailers, online merchants and card accepting contact centres it’s a different challenge. They will probably need to be more upfront to consumers about their pricing policy and practices if they are to avoid criticism.

How does this new ruling benefit the customer?

It’s difficult to see whether this is a benefit to consumers or not. In the past the surcharges were transparent and enabled customers to see what they were being charged (and opt out of using their card if they choose).

With this new legislation prices may go up as merchants attempt to recoup some of their costs. In this case, consumers will have no way of knowing how much they are being charged for using their card. Since the fees are a legitimate cost, then the likelihood is that consumers will continue to be charged. Businesses cannot afford to swallow merchant charges and so they will still pass them on, plus maybe a bit extra, because ‘now they can’.

It’s not all bad news for merchants

The good news is that for merchants and contact centres which are already working with a secure payment service provider (like Encoded) making the changes to their card payment processing system can be easily accommodated. It’s a simple configuration that can be managed easily and one that at Encoded we will administer at no cost.

As to whether anyone will really benefit from the new legislation – the jury’s still out.

¹ https://www.gov.uk/government/news/rip-off-card-charges-to-be-outlawed
² http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32015L2366&from=EN
³ http://www.legislation.gov.uk/uksi/2012/3110/regulation/4/made

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