End of credit and debit surcharges by retailers

For the UK outbound travel industry the onward charging of credit and debit card charges to consumers has been a moving piece of legislation since the implementation of "The Consumer Rights (Payment Surcharges) Regulations 2012.  The latest advice published by the Government on this issue was published by BIS in August 2015.  The guidance has changed repeatedly  and markedly since inception in 2012 and has progressively become more punitive for retailers wanting to pass on their costs to their customers.

Currently these rules make it a requirement that card charges must not be higher than the cost to the trader of accepting the card payment.  The clear objective of the Regulations is that card fees must not be used as a means to generate profit or margin. The position therefore, for travel companies selling a holiday, is that :

  • The headline price for travel arrangements must be fully inclusive, which means it must include costs associated with a commonly available method of payment.  If a consumer can pay without charge for the use of a debit card then the headline price can be just the cost of the travel arrangements or flight. 
  • Fees associated with using an alternative method of payment can be charged as an addition to the headline price, as they're an optional charge, the fee cannot be more than the cost to the business of taking the payment. 
  • The fees can include the Merchant Service Charge, which you pay to your acquiring bank.  This includes the interchange fee paid by the trader's bank to the card issuer, the fees paid by the trader's bank to the scheme and the margin retained by the trader's bank to cover costs and profit. It also includes transaction/overhead fees paid by the trader to intermediaries for some or all of the merchant services usually provided by the acquirer bank.

As a business you therefore need to calculate how much it costs  your business to take payments by credit or debit card and set your charges accordingly.  Businesses must always be prepared to provide evidence of the basis on which they have calculated their charges, in case of query by a regulator or enforcement body.  Using a % charge, averaged out over transactions is still permitted, but there needs to be detailed calculations done and you cannot average these across two or more individual methods of payment. 

January 2018 next instalment

The Second Payment Services Directive (PSD2) is a piece of payments related legislation in Europe, which came into force in January 2016.  the Directive requires all member states to implement these rules as national law by 13/01/2018.  The likely effect is that businesses will not be able to pass on any charges to consumers for using their debit or credit cards to pay for goods or services. The HM Treasury is due to publish the UK regulations sometime in the early part of this year and contained within will be the detail of application.  Some of the larger entities have responded by dropping their charges, as they know this charging mechanism is on borrowed time.  A lot of travel companies have changed their approach to be fully compliant currently and are planning for the impact in January 2018.  Other public domain organisations charge amounts clearly in excess of their cost. The ramifications of the January 2018 legislation cannot be ignored by businesses and need to be factored into the long term financial strategy.