High Streets Initiative · 20 July 2017

Retailers fear squeeze from banks ahead of card payment surcharge ban

Low key macro shot with old credit card.
Retailers have blamed banks for charging “extortionate” card payment fees

Independent retail owners have expressed concern that new rules banning the extra charges added to payments made by card will ultimately result in their margins being squeezed, Business Advice can reveal.

The government announced on 19 July that as of January 2018, the practice of adding surcharges on to the prices of goods and services for consumers who pay by card will be outlawed, but several sources have claimed that it will likely be retailers who’ll have to bare the resulting extra costs, with the profit margins of smaller independent retailers most at risk.

Jason Cutts, a retail business owner who takes more than £1m in card payments each year, said that he thought it was unlikely that banks, which provide credit and debit cards, would stop charging retailers for taking card payments, thereby forcing retailers to increase the costs of goods and services.

He told Business Advice: “If retailers are banned from charging a surcharge, which we reserve the right to do, then all prices will need to increase and cash buyers will effectively be paying more as a result.”

Cutts said that the fees banks currently charge retailers for taking card payments were “extortionate”, and that banks’ fees charged to retailers for accepting card payments should be capped to make the system fairer. He claimed his bank charged almost six per cent for accepting a business credit card payment, and 2.5 per cent for a personal credit card.

“Banks should have charges capped,” Cutts reiterated. “Many people now use credit cards as ‘free credit’ until month end when their balance is due. Ultimately, the retailer is picking up the bill for this by way of the fee deducted from the payment before it reaches their bank.

“I think there should be caps on credit cards for businesses in particular. They’re given ‘willy-nilly’ by banks to companies, including the self-employed, with little information given that there is a large financial burden for someone attached to it, be it the company that uses it, or the retailer they choose to pay using it.”

Stephen Allan, the owner of a small but growing office furniture company, agreed that a cap should be placed on how much banks are able to charge retailers for card transactions, calling for a two per cent blanket card payment surcharge for all retailers.

“It would be fundamentally wrong to make retailers pay the charge that banks choose to impose, because they will just keep on ramping it up,” he told Business Advice.” Imposing a ceiling limit [of two per cent] would make it a level playing field, and prevent abuse from those ‘rip off’ retailers that make a profit [from surcharges].”

Cutts added that although the rule changes represented a heavy blow to the UK retail industry in general, it is likely to be small independent firms that are impacted the most if bank card payment fees aren’t kept in check.

He said: “Fees from card terminal providers are negotiated and based on the amount of revenue being processed, so larger chains on the high street or online, such as B&Q or House of Fraser, will get much more favourable rates than would say ‘Janes coffee shop’, with turnover of a few hundred pounds per day. The playing field is therefore far from level for smaller businesses trying to make a go of it in the modern world.”

Ban on “rip-off” card payment surcharges could benefit independent retailers

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This article is part of a wider campaign called the High Streets Initiative, a new section of Business Advice championing independent and small retailers by identifying the issues that put Britain’s high streets under pressure. Visit our High Streets Initiative section to find out more.

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Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.

High Streets Initiative