Credit Card Surcharges – Your Options

credit card surcharges

The announcement from HM Treasury that from 13th January 2018 businesses will be banned from adding surcharges to credit and debit card payments has received a mixed response from merchants. On the one hand some are welcoming the transparency this brings, and a levelling of the playing field where some competitors add a surcharge and others do not. Yet for those businesses that do add a surcharge to card payments, there will be an impact on the bottom line.

It is estimated that surcharges on credit and debit card payments has generated £473 million for businesses. However, this ‘income’ is swallowed up by the costs associated with processing payment card transactions, and businesses cannot profit from adding a surcharge – consumers are paying for processing, not for the option to pay by card. With the ban merchants will now need to decide whether they will need to implement a general price increase to militate against card processing costs, or take a hit for the consumer.

Could The Credit Card Surcharge Ban Be Good News?

There are potential benefits of the surcharge ban. Of course, we are all consumers so on a personal level we will all benefit from greater transparency and no surcharge surprises when we get to the checkout.

“The transparency created by the scrapping of card surcharges will bring about a sigh of relief from the millions of consumers across the country who have previously been hit by unpleasant charges at the end of the booking or purchasing process. Businesses claim that the charges are to cover processing costs, but the consumer really has very little idea as to what they are actually paying for. Following the ban, however, it will be a case of ‘what you see is what you pay’, making it easier for consumers to accurately compare prices and avoid any nasty shocks when it comes to payment.” Laurent Dhaeyer, Managing Director of Secure Trading

For merchants, whether card processing costs are reflected in a general price increase or not, no surcharges means one less friction point in the payment journey. Cart abandonment rates were on average 69.23% at the beginning of 2017, with ‘unexpected costs at the payment stage’ being the most common reason for consumers to abort their online transactions. Along with shipping costs, surcharges are the main contributing factor to these unexpected costs.

For consumers the removal of payment card surcharges will also mean they will be able to compare prices between different merchants more effectively. Those merchants who offer competitively priced services and goods, and free or low cost shipping will naturally have an advantage.

It is also possible that for expensive items, such as purchasing a car, with no surcharge to pay consumers will have more money to spend on their purchase. Surcharges on these types of transactions can amount to several thousands of pounds, which could be reinvested by buying a more expensive model or additional features.

How To Handle The Surcharge Ban

However, some merchants are wondering whether they can afford to continue to take online card payments, as the cost of processing these transactions will not disappear with the ban.

Blanket price increases may subsidise card processing costs, but could make a merchant’s pricing uncompetitive if other merchants don’t follow suit.

Alternative Payment Methods (APMs) may offer more inexpensive ways of taking payments, although this will depend entirely on the market. While it is predicted that by 2019 55% of all ecommerce turnover will be by APMs, not offering online card payment methods could have a detrimental impact on conversion.

It requires a balancing act between ensuring your business is receiving a competitive rate from your payment services provider (PSP), is offering a range of payment options aligned with your market, and is ensuring pricing is competitive and transparent.

Merchants may also consider ways to incentivise their customers to use less expensive payment methods, by promoting the convenience of options such as APMs and featuring these prominently on payment processing pages.

They can also ensure that processing costs are recouped where permitted.

HM Treasury’s ban reflects EU legislation that prevents merchants from adding surcharges to transactions from payment cards issued in the UK and EU member states. It doesn’t apply to credit and debit cards issued outside the EU. Merchants can still recoup the cost of high interchange fees incurred by non-EU international transactions.

BIN lookup services – also known as IIN lookup – can enable merchants to identify the card type, issuing bank and where the country the card is issued. This solution can be used for MOTO and online transactions ensuring that when a credit or debit card is issued in non-EU countries, merchants don’t forfeit any potential revenue.

If you need support adapting to this new legislation and would like to explore ways to reduce the impact of the surcharge ban on your business, please get in touch with our team. Call +44 (0)808 159 8813 or email [email protected]

For more information about BIN lookup for MOTO transactions, download the product sheet here.