It’s been a long time coming but the government is finally (after being pushed by the EU) cracking down on credit and debit card surcharges.
From 13th January 2018, merchants will no longer be allowed to levy any surcharges on customers for any payment type.
The new legislation follows on from the 2013 shake-up, which banned businesses from charging more than it cost them to process the payment. (Although whether businesses listened is debatable.)
In this article, I’ll take a look at what prompted the change and what it means for both merchants and consumers.
Who is worst for surcharging?
Extra fees for paying with credit and debit cards are frustratingly common with surprise charges tacked on when buying everything from gig tickets and flights to takeaways and groceries.
However, some industries have earned a reputation for charging customers way over the odds.
The BBC recently reported that some airlines have charged up to 3% surcharge on credit card payments with a minimum charge of £5, which can substantially increase the cost of cheaper tickets.
However, some airlines have recently begun reducing their surcharge fees. Flybe — one of the airlines mentioned in the BBC articles — has recently reduced its surcharge rates to 1% for credit cards.
Takeaways and other food businesses can be just as bad. These businesses often drop fixed fee surcharges on card payments under a certain price — usually five pounds.
Say you bought a small pizza for £4.50 and the takeaway charged you an extra 50 pence. While it seems like a small addition, it’s an additional 11% on top of your bill!
It’s so widespread that consumers have, sadly, come to expect it.
If you want to go to a concert, you expect to pay ridiculous card fees. If you want to go on holiday, you expect to be stung by extra credit card charges.
It’s no longer a disincentive for consumers so businesses continue to charge hefty fees.
Aren’t surcharges already banned?
They are both quite a long articles, digging into the nitty gritty of surcharging but the headline message was this.
Under the Consumer Rights Regulations, merchants can surcharge customers but they must charge no more than the cost of actually processing the payment.
Unfortunately, it seems that no one told businesses because they’ve continued to charge ridiculous fees at the expense of consumers.
And that raises an important question. If businesses ignored the Consumer Rights Regulations, why would they listen to the new legislation?
What can merchants do?
When people talk about surcharges, they usually focus on the customers. That is probably fair as it’s the customer that’s footing the bill.
However, surcharges only exist because merchants are charged to accept payments. That makes it important to talk about the merchant’s role in all this — especially going forward as their options are now limited.
With enough research, merchants should be able to bring their payment processing costs to well under 1%. That makes it feasible for them to absorb the cost as a cost of doing business.
The alternative is to include the payment processing costs in the headline price and pass on the cost that way.
James Daley, managing director of Fairer Finance, believes that some merchants may well do so.
Maybe they will bump the price up. That’s fair game. You have to take customers’ money somehow. And it’s not reasonable to add that cost on at the end of the process. Why not put it in the headline price?
Whether you plan to eat the costs yourself or pass them onto your customers, it’s important to shop around and find the most competitive merchant service deal.
The difference of one or two percent can easily result in thousands or tens of thousands of pounds saved over the course of a year.
To see what the market has to offer, compare merchant service deals here.