The ban on card surcharges: a success, or just senseless?

George Hay Chartered Accountants

Credit and debit card surcharges have been an annoyance to consumers for many years, particularly when added on in the final stages of a transaction, often leaving us with a conundrum; do we pay anyway, or do we walk away?

Originally implemented as a means for businesses to recover the costs of processing these types of transactions, the cost to consumers has been substantial, totalling around £500 million each year. It has since come to light that many businesses may have unfairly profited, having charged consumers a considerable amount more than the banks had charged them for handling the payment.

Putting an end to this, as of 13 January, surcharges on payments made using personal credit or debit cards, including Mastercard, Visa and American Express for example, were banned outright by the UK Government. The ban will remain law even when the UK leaves the EU as, though it is based on an EU directive, it is a UK law change.

Now, a month on, we consider what impact the ban is likely to have on consumers and small businesses going forward.

The cost to consumers: savings vs. service charge

In theory, the new measures should save consumers an average of 3% on a typical purchase and endorse greater transparency when it comes to what they are paying and why but, in practice, this is unlikely to be the case. Some shoppers may well benefit from the veto on credit and debit card fees, but elsewhere the potential saving could be diluted by a hike in prices or the addition of other ‘service charge’ fees.

In an environment where rising costs are the norm, certain increases triggered by the change in law could easily go undetected. Hence, consumers are being encouraged to become more discerning and shop around to find the best deals.

Shoppers are also likely to find that ‘minimum spends’ become more commonplace and that many small establishments may well cease to accept credit card payments altogether.

Some retailers will have had these conditions in place for some time by choice but many others will now be forced to consider these possibilities as a direct result of no longer being able to pass their own costs down to the customer.

Consumers who suspect they have been wrongly charged for paying by card, following the enactment of the ban, should report this to Trading Standards whose obligation it is to investigate these instances further. The consumer is also within their rights to ask that the charge be refunded.

Surcharge ban signals time to innovate for small businesses

At first glance, the ban may not appear to be of any benefit at all to businesses and retailers. Many who frequently take payment online, over the phone or via a card machine may feel like they’re stuck between a rock and a hard place; faced with either increasing prices which may drive custom away, or otherwise taking a hit to their own bottom lines.

Some might opt to implement a minimum spend, some will refuse card payments altogether and others will consider how they can repackage the surcharge as a ‘service fee’. For example, popular restaurant takeaway app Just Eat has announced it will be adding a 50p charge to every order, irrespective of the method of payment; a measure that they say ensures ‘fairness for all’.

However, it’s not all bad and businesses are being encouraged to look at the bigger picture, before making any rash decisions, as there may be much more to gain than there is to lose.

When legislation changes and businesses are required to adapt, they will significantly increase their chances of survival if they persist in remaining competitive.

The drift towards cashless payment is only set to continue as more and more cardholders enter the market all the time and now, with the surcharge gone, consumers may begin to exhibit less inhibition when it comes to spending.

Businesses, consequently, may even find that they reap some profit in the end, but only if they provide shoppers with the means to spend their money effortlessly.

Research by card machine provider Paymentsense[1] found that, on average, shoppers spend £135 a month on their cards – a figure that they believe will increase because of the above.

The Federation of Small Business (FSB) also expects any negative impact on small businesses to be relatively short-lived.

Lorence Nye, Policy Adviser at the FSB, said: “The most optimistic outlook is that businesses will have to shoulder a higher cost in the short term, but that will drive more innovation and new kinds of payments that allow them to reduce costs.”

Small businesses should be shrewd when it comes to choosing a bank to process their payments and much like consumers, they would be wise to shop around.

Embracing technology and discovering cheaper ways for customers to pay; from contactless payment, to online payment gateways and ‘open banking’, will also benefit a business’s bottom line in the long-term.

The new rules, which are now in effect across Europe, are already prompting innovation in peer-to-peer payment apps, including Barclays Pingit in the UK.

Here at George Hay, we can help you to understand how the latest changes in legislation might affect your business. If you’re concerned about your cashflow, we can help you to generate realistic forecasts based on the facts and avoid any nasty surprises. We also support a range of online accounting and bookkeeping software packages meaning we can take care of your cloud accounting needs. Whether you’re a total novice or you know a little already, our advisers can provide you with as much, or as little, input as you require; from initial set-up and training to incorporating the latest software into your usual accounts routine. Call us today on 01462 70881 to find out how our team can help your business.


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