Due to new legislation and with the exception of commercial cards, from 13th January 2018businesses in the EU will no longer be allowed to apply surcharges to card payments. News of this change has prompted many questions for business owners; “How can we reduce the impact?”, “Will we have to increase prices to compensate?”, ‘Will minimum charges for using a card in pubs or shops also be against the rules?” And the list goes on… but before we dive into the answers, let’s take a look at exactly what is meant by surcharges.
The definition of a ‘Surcharge’
A surcharge is an extra fee charged by a merchant when receiving a payment by credit card, charge card or debit card (but not cash) and is typically taken to cover the merchant services fees imposed by parties providing their card payment solution (bank/payment processor, terminal provider or payment gateway).
Now let’s address some of the key questions…
Will your businesses be affected?
The change will impact the thousands of SME’s who currently, under the Consumer Rights Act, do pass on charges that genuinely reflect their costs. Other sectors most affected will be travel, theatre/concert booking sites, local councils, HMRC and the Driver and Vehicle Licensing Agency (DVLA). All will now have to change their payment policies.
Will prices go up as a result?
There’s no question that businesses do face extra charges when someone pays by credit or debit card so it’s very likely that firms will have to consider putting up prices. British retailers spent some £800m on such charges in 2016 and some are still not receiving a fair reduction in charges following the EU’s intervention in reducing the fees that Mastercard and Visa charge the payment processors for card transactions.
What about minimum charges for using a card?
Some small shops or pubs have a £5 or £10 minimum spend before they will accept a card. Although against Visa and Mastercard Scheme rules, this will not be specifically illegal under the new directive. However, as more consumers switch away from using cash, many retailers may not want to risk losing their business. Retailers may also want to review this practice as debit cards are now charged as a percentage of the transaction value, the same as credit cards, thereby reducing the impact on profit margins for small value items.
How will the system be monitored?
Trading Standards officers at local authorities will receive and monitor complaints about any businesses who continue to impose card surcharges after 13 January 2018. Although we expect resources to be limited our advice would be to build the annual costs of accepting cards into your overall business costs and margins.
As an EU Directive, will it still be law after 2019?
The directive has already been incorporated into UK law, following a vote in parliament in March 2017. It will therefore remain law after March 2019, when the UK leaves the EU, unless it’s repealed at some point in the future.
Is there anything we can do to lessen the impact?
In the first instance we’d recommend a review of your current pricing for accepting card payments. Typically, businesses can save up to 40% by undertaking such a review and this can therefore immediately reduce the cost of accepting card payments, whether you’re currently surcharging or not. A review may also identify more efficient and customer friendly ways of accepting card payments which will add value to other areas of your business and counter the additional business cost of losing the surcharge option. For car dealers and businesses who are used to accepting large transaction amounts you can always see if your customer can pay you by faster payment!
Written by Richard Bradley – CEO