The recent public announcement by the government on the new payment services directive brought conflicting feelings.
Ultimately, if you remove the cost from one link in the chain, in this case from the consumer, then somewhere along the chain it will be passed back to them as there is only so much extra cost a business can absorb.
From January 2018 businesses will no longer be allowed to pass surcharge payments onto consumers for either a credit or debit card transaction. The ban on charges will apply to Mastercard, Visa and the government has now extended the ban to include both Amex and PayPal too.
The public announcement, which is positive for consumers, failed to mention the additional costs a business will incur to process future card payments. Perhaps as consumers we are not that sensitive to business needs, but we should be as it will directly impact a company?s running costs and they may have to cut their cloth accordingly.
This piece of consumer legislation is designed to protect consumers from excessive surcharges, which is understandable as I too feel aggrieved at having to pay simply to use my credit card ? particularly on a low value transaction. However, the law also needs to carefully consider how their decisions affect businesses of all sizes.
To give an example on how it may impact a company, a business that processes ?6m annually on debit cards may not currently pass on the fee they incur as it?s always been a relatively small amount on each transaction processed. For the purpose of this illustration let?s set the charge at 30p for debit cards. The cost payable to the merchant acquirer would be around ?2.3k.
Under the new legislation debit charges are being migrated over to a percentage fee, which varies but for this example we?ll use 0.5%. If we take this percentage fee and assess the cost against a business transacting ?6m on debit cards, the processing of payments cost rises to more than ?18k from ?2.3k. You start to see the major impact this will have on businesses.
So, whilst the cost to process credit cards has been reduced, dependent on your mix of debit v credit card transactions, businesses will be in for a very nasty surprise when they start to analyse the cost they are going to have to absorb.
My question to the government is how will they support businesses to absorb these material increases? How is any business going to be able to absorb such an increase in their costs given the average price of the holiday.
As a retailer what are your options? You can technically and legally add a booking fee to all transactions so long as you do not discriminate against the payment method a customer chooses. The transaction fee must be added to all payments purchased with your company. But you will have to decide if this will still make you competitive in your market place.
At Advantage Travel Partnership, we have been consulting with members on the credit card legislation and will be launching our Profit Protection Plan (PPP as we like to call it) later this summer. It will set out some practical methods, guidelines and advice to help Advantage members take positive steps to protect their business model ahead of the new law being implemented in 2018.
So, unless you can afford to absorb these costs, my advice to you would be to start planning now. Start thinking about how you are going to manage the processes and costs to be associated with payment cards and to speak with your merchant supplier too. Shop around and evaluate all your options and think about how you can commercialise areas of your service that could add value to your customer.
Whilst I believe in greater transparency and consumer protection to stop any unscrupulous methods of ripping off customers, I do believe the public should be made aware that though they will receive a free service, it does not mean the merchant companies are making their services free and businesses will be picking up the bill, which ultimately will find its way back in higher prices for the consumer.
