But with the popularity of card payments in the UK, especially in certain sectors such as retail (they accounted for around 75% of all retail payments in the UK in 2016), eliminating this payment option altogether could be a risky strategy. So what are the alternatives? New laws, which went into effect on Jan. 13, prohibit businesses from charging consumers fees to pay by credit or debit card, whether online, over the phone, or in-store. The new rules only apply to business-to-consumer transactions, so businesses can continue to charge fees for business-to-business transactions, provided the fees do not exceed the costs they incur directly. However, entrepreneurs who pay via a personal credit or debit card are considered consumers. Small businesses are much more likely to cover the cost of card extras. A competitive environment in which consumers appreciate even the smallest price changes leaves some retailers with very little choice. Family shops and restaurants are among the most affected. It is likely that the size of the business will be the most important factor in assessing how people will handle markups on card processing fees. It`s likely that big companies like Ryanair and Thomas Cook will raise their prices to cover their card processing fees, so don`t be surprised if you see “admin fees” when you book your next vacation. There are many ways in which companies can adapt to combat the risk of financial loss: these are just a few of the companies that have already levied the surcharges, but in reality, the biggest savings will be on the most expensive purchases.
Since the fee was often a flat rate of 2%, you would have felt it a lot more if you had spent on a car or an expensive vacation! Banks typically charge large retailers between 10p and 20p for each debit card transaction and 0.6% for credit cards. These costs will add up, of course, and retailers need to find a way to cover them. Some have argued that even if prices were to rise due to the ban on credit and debit card fees, it would still be fairer than the old system, as consumers would at least know the cost before committing to buy. Before it was made illegal, the law limited credit and debit card fees to what it cost the retailer to process a card payment. No profit was allowed on these surcharges. Looking ahead, the introduction of “open banking” could mean a complete abandonment of card payments. Consumers will soon be able to pay with their account number and sort code and authorize payment through their online banking, which could lead to a decrease in card payments and reduce the burden of transaction costs. But do businesses have to cover the cost of card payment processing fees? Or will they simply raise the prices of goods and services? Good news, then, since it is now illegal to charge extras on using a debit or credit card, including American Express and other connected payment methods such as PayPal and Apple Pay. The ban on surcharges is one of many changes caused by new EU rules known as the European Payment Services Directive 2 (PSD2), an update to the previous Payments Directive in 2013.
The regulations aim to strengthen competition in the payments sector, improve customer protection and introduce common standards. The abolition of card surcharges is not the only change in the card payment industry in recent years. The UK government has passed several EU laws that should theoretically limit the cost of card processing by reducing the cost of interchange fees. The exchange is one of the main costs in the card processing fee. It was capped at 0.2% for consumer levies and 0.3% for consumer credit in January 2016. This should have led to a sharp reduction in overall costs. In practice, trading service providers have not passed on these savings to clients. So far, no company has said it will raise prices to make up for the loss of surcharges. That doesn`t mean they won`t, but companies like Flybe and Premier Inn have announced that they won`t follow Just Eat in introducing new service fees. “The ban on surcharges is already shaping the payments industry, but it remains to be seen whether it represents a significant move away from card payments or simply an increase in market share for alternative payment methods such as direct debit,” Pranav explains. As of January 13, 2018, businesses will no longer be able to charge fees for credit or debit card transactions. Consumers will be excited about the new changes, but what will be the impact of businesses? Updated with new rules prohibiting merchants from charging extra on a variety of transactions.
The new rules will come into force on 18 January 2018. The ban does not apply to payments made with corporate credit or debit cards, but merchants who accept payments from this type of card (usually B2B companies) cannot charge a fee higher than the costs they incurred to process payments. Pranav Sood, Director of Business Operations and Strategy at GoCardless, comments: “While the ban will affect anyone who accepts credit or debit card payments from personal cards, the impact will vary from business to company: small merchants are likely to be the most affected, or those in industries that typically operate at low margins and will struggle to absorb processing costs. It`s important for companies to consider their reputation and competition in the market before making any changes as a result of the new rules – some companies can take the hit and bear all the costs themselves. On the other hand, small businesses may struggle to absorb costs and somehow have to recover costs from the consumer. Consumers have the right to take civil action against non-compliant companies and/or refer the case to commercial standards that can investigate companies and enforce injunctions against those found guilty of violations. Guide for businesses explaining the rules on payment surcharges. Merchant service fees, card machine costs, and online payment fees vary greatly from provider to provider. Different suppliers will be cheaper for companies that work in different ways. It`s time to say goodbye to card supplements in the UK. There are many misconceptions about card processing costs and switching merchant service providers. Here are the top 3: BBC business – credit and debit card surcharges that can be banned Card surcharges amount to 473 million fees for customers in the UK.
A wide range of businesses and government organisations will be affected, including HMRC, flight operators and family stores. The amount of the surcharge can also vary, with a fee for a plane ticket can cost up to £25 compared to a supermarket which could charge 25p. Different industries will be affected to varying degrees. These supplements were apparently everywhere, and for this reason, you may not know how much you might end up saving now that they`ve been banned. Here are some of the big names that, to date, have charged additional fees for payment by credit or debit card: It`s also worth noting that these new laws don`t interfere with a company`s right to set a minimum card payment, so you`ll still need to keep some change with you for those offie trips. The ban on credit and debit card fees officially goes into effect today, but one company seems to have sneaked in its own way to charge you that extra 50p. People who have advocated for the change argue that banning credit and debit card fees will help consumers get a better deal. Similar movements have occurred in the travel industry, where operators tend to operate with lower margins than their retail counterparts and have traditionally charged customers around 2% for credit card payments. Online agent Igloo reacted quickly to the ban and stopped accepting credit cards to pay off a vacation credit.
Instead, customers can spread the cost of their vacation by direct debit with GoCardless, bank transfer, or check. The new rules apply across the EU and will remain in force in the UK after Brexit. The ban applies to all transactions where the company`s bank and the consumer`s bank are based in the EU. If the company`s bank is located outside the EU, the company may charge a fee, provided that it does not exceed the costs directly incurred by it. “As a result of the ban on surcharges, the benefits of bank-to-bank payments for businesses are becoming increasingly evident.