Surcharge Ban on All Card Payments

On the 13th January 2018, new EU rules banned surcharges on all card payments. Many believed this change will have a knock-on effect on small businesses.

In UK convenience stores, approximately 50% of purchases are made with credit and debit cards. Under the new rules, retailers are no longer allowed to pass on any credit and debit charges to their customers and are expected to cover the costs themselves.

In a recent TRDP survey, we looked into the potential impact of the new EU rules within the convenience sector and discovered that around 75% of retailers are expecting to feel the effect of the changes..

Do you think the card surcharge ban will affect you?

• 22.9% Yes
• 77.1% No

"It is going to impact our business in a big way. The profit margins on card payments are none, and we only break even if that. We only charge our customers to cover the cost of the chip and pin machines. We would rather not charge our customers, but we have to cover our monthly costs.” – TRDP Retailer

Minimum Charges – 64% of respondents

While surcharges are now outlawed, minimum charge requirements on card spending remains legal. This allows retailers to cover card machine and transaction costs by requiring greater spend by their customers. The most common minimum spend amount is £5 and with the average 2017 card transaction in TRDP convenience stores reaching £12.05, many transactions are likely to be eligible for card payment if a minimum charge requirement is applied.

However, this plan may turn off impulse purchases, and could push people to the supermarkets who generally do not charge for card payments.

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"The changes to come will force us to put a minimum spend on card payments which could mean losing customers or we may even have to increase prices to cover the costs and still have the same risk of customers looking elsewhere.” – TRDP Retailer

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Removing Card Payment Facilities – 7.1% of respondents

Removing card payment facilities altogether means retailers will no longer have to deal with card charges but as 50% of transactions are done on card (with contactless and mobile payments growing this is unlikely to do anything other than grow) retailers are likely to miss out on a major, growing market.

Continuing to charge – 12% of respondents

By continuing to charge for card payments, you definitely won’t be out of pocket but this is illegal, and Trading Standards are likely to be enforcing this.

Support from card payment providers

Some retailers are focusing their frustration on card payment providers, as they feel the fees are too high and cannot justify the payment for a small business.

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"When customers purchase items under £5 we have no choice but to add a transaction fee as we make very little profit, exclusive of the additional cost to maintain the usage of card machines which is too expensive for us as a small business”. – TRDP Retailer"

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We asked one of our payment partners NetPay, for their take on this situation and what these changes mean for them as a payment provider.

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"It is important that retailers and other businesses which take card payments are aware of this change in the law. There are bound to be examples made of those flouting the law, especially with the increased likelihood of customers reporting such charges to Trading Standards – there is very little point in taking the risk. We are aware that many businesses are facing narrowing profit margins, the impact of the living wage, rate rises and general increases in the cost of doing business and will find the charges hard to absorb and need to respond. At NetPay we will continue to offer the opportunity for merchants to effectively manage this cost and have a partnership with TRDP for those looking to take advantage of preferential rates. We offer businesses the opportunity to compare costs with their current supplier, so they can see how much they would save by signing up with NetPay to offset the increase in cost”. – Carl Churchill, Managing Director of NetPay Solutions Group

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It’s not all bad news!

It’s no surprise the retailers are feeling the frustration, however some retailers see this as an opportunity for growth. One effective way to boost turnover is to focus on increasing your basket sizes. There are a variety of ways to achieve this including promotions, range reviews and even loyalty schemes (such as TRDP Local Loyalty). This looks to be the first of many pieces of legislation that will impact retailers (minimum alcohol pricing, the sugar tax and the Latte Levey being just a few), so it’s important to start planning and futureproofing your business strategy.