For many years the European Commission has been signalling its desire to regulate ‘interchange’ – the fee paid between banks for processing card payments – which is typically passed on wrapped-up in the fees paid by the merchant who takes the payment.
In 2013 the EU decided to cap interchange costs at 0.3% for credit cards and 0.2% for debit cards and this is now being implemented for all domestic card processing during 2015. Although this cap applies only to the rates paid between the banks, with merchants always paying an additional margin or fees on top, clearly the EU is hoping some of the reduction will be passed on to merchants. Estimates suggest this could total a £1 billion annual saving for UK merchants and as much as €10 billion across the entire EU.
This should be good news shouldn’t it? Not so fast - there are some clear winners and losers.
Whilst credit card processing fees are expected to fall, the position with debit cards is more complicated. Debit card processing is typically a pence per transaction fee, so in response to the % cap it’s anticipated most if not all UK acquirers will switch to a predominantly %-based fee. This might be good news if you take lots of smaller payments, but not so much if you take larger payments. Roughly speaking merchants taking payments for less than £35 will pay lower fees, but transactions above £35 will pay more.
And that’s not all.
Payments taken over the telephone (classed as ‘customer not present’ or CNP) will be deemed non-secure, even when the AVS/CVV2 numbers are captured, and will be subject to an additional charge.
So, what does this mean for the UK debt industry? The debt industry’s card processing is predominantly conducted over the telephone (90%), mostly debit card (95%) and an average transaction value typically between £50-100. On that basis, it is quite possible that most UK creditors and debt collection agencies card processing costs could double.
The one small positive is when these changes are implemented merchants are likely to have the opportunity to switch providers, even if they are within an existing contract period. So my advice for merchants is to use this opportunity to shop around for the best deal and see whether some of this increase, which you can’t avoid, can at least be reduced by switching to a cheaper provider.
By Sajid Hussain, Business Development Manager, TDX Group