How will the card surcharge ban affect small businesses?

By SME Insurance

Posted 11/01/18

As of 13 January 2018, the UK Government will scrap fees on credit and debit card transactions for consumers, meaning businesses can no longer pass charges for card payments on to their customers. This is in line with the “Payment Services Directive II” (PSD2) and will apply in all European countries. PSD2 aims to create a common legal framework for payments between business and consumers within the European Economic Area, in order to create a more efficient payment market, promote competition and improve consumer protection [1].

The move is expected to save consumers £483 million a year [2], but what will it mean for small businesses like cafés, off-licences, and shops? Card processing companies charge businesses a “merchant service charge” (MSC) to process credit card and debit card transactions, this is typically around 10-20p for a debit card payment or 0.6% of the total transaction for a credit card payment, but can be higher for small businesses.  This discrepancy in charges could ultimately make it even more difficult for small businesses to compete with larger companies. Plus there are additional fees including terminal rental [3]. Until now businesses have been able to pass these charges on to customers as a surcharge, which is an extra fee that covers the cost to the business of processing a debit or credit card payment [4].

What can Your Small Business do to Avoid Losing Profits?

With only 23% of point-of-sale purchases thought to be made with cash in 2017, going card-less is not an option for most shops and small retail businesses [5].  Some companies are already planning to bypass the PSD2 by altering the way they charge customers, for example by adding a service or booking fee to all transactions rather than just for credit card payments [6].  You could follow their lead and absorb the costs in other parts of your business, such as increasing product and service prices or refusing to accept card payments for transactions under a certain amount, but it’s important to stay competitive [7] [8].

To reduce the impact of this change on your business, you might consider the following:

  • Shopping around: there are a lot of credit card processing providers in the market so shop around for a better deal. Don’t be scared to try and negotiate a better price [9].
  • Setting a minimum charge limit: Many shops and pubs already have a minimum spend of £5 or £10 for card transactions [10].
  • Reducing the risk of credit card fraud: the lower the risk of fraud, the lower your credit card processing fee will be. Make sure you’re taking all the steps you can to prevent fraudulent activity [11].

At this stage it’s difficult to anticipate how these changes will affect small businesses. However, with banks charging higher fees to smaller businesses it could make it even more difficult to compete with larger companies [12]. If you currently rely on credit card transaction fees it’s important that you are ready for the change this weekend.

[1] https://www.paymentsuk.org.uk/sites/default/files/PSD2%20report%20June%202016.pdf 

[2] http://www.bbc.com/news/business-42621989

[3] http://www.bbc.com/news/business-40655333

[4] https://www.cardswitcher.co.uk/2017/02/credit-card-surcharge/

[5] https://www.americanexpress.com/us/small-business/openforum/articles/small-business-owners-guide-accepting-credit-cards/

[6] http://www.bbc.com/news/business-40655333

[7] https://www.americanexpress.com/us/small-business/openforum/articles/small-business-owners-guide-accepting-credit-cards/

[8] http://www.bbc.com/news/business-42639408

[9] https://www.investopedia.com/articles/professionals/091515/small-business-minimize-your-credit-card-fees.asp

[10] https://www.investopedia.com/articles/professionals/091515/small-business-minimize-your-credit-card-fees.asp

[11] https://www.businessnewsdaily.com/6774-lower-credit-card-processing-fees.html

[12] https://www.cardswitcher.co.uk/2017/02/credit-card-surcharge/

 

Posted 11/01/18

Author: SME Insurance

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