How Small Businesses Have Been Impacted by the Card Surcharge Ban

surcharge ban

The implementation of the card surcharge ban earlier in January has angered many business owners. Retailers can no longer pass the cost of processing consumer credit and debit card transactions onto their customers, and are trying to absorb this extra cost. Mark Latham, director at Handepay, gives his insight on how UK businesses have been affected.

The card surcharge ban has divided the opinions of British retailers. Some think that the ban is damaging the profits of businesses, while those who didn’t add surcharges in the first place believe that it is part and parcel of running a company. From what I’ve seen, businesses are tackling the ban in a few different ways.

Some are disappointed by the ruling but believe that taking any type of payment has a cost. These companies are looking to absorb the costs, to make sure that they don’t lose out on sales. Others are avoiding the charges by encouraging their customers to pay in a different way, some offering benefits for those who pay by cash or bank transfer.

A minority of businesses have decided that they can’t absorb the cost, and are no longer accepting card payments. I feel that this may be a bit short-sighted on their part, as the risk of losing sales, as a result, is high. Card transactions have become increasingly commonplace in recent years; debit card payments overtook cash transactions for the first time ever last year and some consumers no longer carry any cash at all. This makes accepting card payments vital for businesses of all sizes.

A few companies have seemingly skirted the ban by adding fees elsewhere. Consumers have not reacted well to this, as fees are now applicable even when paying in cash.

The businesses most affected by the surcharge ban are those with high average transaction values, such as car dealers, travel companies, and furniture shops. As they accept high-value sales, they lose more money per sale to percentage-based merchant account fees.

However, one company I spoke with managed to negate the effect of the surcharge ban by analysing their card terminal fees. The company, operating in the medical sector, accepts payments with an average transaction value of £500. They make around £40 of profit per transaction.

This means that they are required to pay 1.5% of each transaction in fees, working out to around £7.50 per sale. They previously covered this cost by adding a surcharge on card payments, however, following the ban their profits would drop by nearly 20 per cent.

The company shopped around and discovered that they were being overcharged for their card processing fees. Simply by switching providers, they were able to considerably reduce their losses following the surcharge ban.

My main concern is that other business owners aren’t as savvy, and are still unaware of what they’re paying for and how the surcharge ban will affect their finances.

Some card processing providers aren’t clear on their charges, meaning that retailers could be paying more than necessary without realising it. Various fees can be added to merchant services bills each month, raising the price of accepting card payments unnecessarily. Hidden costs to watch out for include minimum monthly service charges, PCI compliance charges and authorisation fees.

Some business owners feel that they were unprepared to put a plan in place in good time before the surcharge ban came into effect. The issue surrounding surcharges was big enough to warrant EU involvement, however I don’t believe that there has been a good provision of guidance for business owners to follow.

As a result, retailer’s interpretations of the surcharge ban have been disparate, and businesses don’t seem to be fully aware of what the restrictions are. For example, many business owners are unaware that the surcharge ban only affects payments from consumer credit and debit cards issued within the EU. This means that B2B businesses and those who receive payments on commercial cards could remain largely unaffected.

I spoke with one business owner who was complaining about the ban, and was concerned that he would be hugely out of pocket without the ability to add surcharges. Upon investigation, the company provided B2B services, receiving the vast majority of their payments from business cards, so wouldn’t be affected.

Some businesses still appear to be unaware that they can no longer add surcharges, and are still charging customers to pay by card. I received an invoice from a travel agent following the ban, still with a 1.5% surcharge added. When I queried the cost, it was removed immediately, however other consumers could have paid this without knowing.

All business owners need to understand that they can no longer add surcharges onto transactions paid by card. The ultimate penalty for any business who continues to add surcharges is the risk that consumers will deem them untrustworthy and stop shopping with them.

Author: Mark Latham is director at Handepay, a merchant services provider offering bespoke services to businesses.