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How small businesses can tackle the UK card surcharges ban

11 December 2017 Small Business Advice

The UK Government is making it illegal for merchants to add a surcharge for their card payments. How will this impact small businesses? Is this really bad news or could you stand to profit from this change?

The UK government has passed a bill as part of the Payment Services Directive, banning all card payment surcharges. The change will come into effect on 13 January 2018, making it illegal for any business to add a surcharge to their customers’ credit or debit card payments. 

What is a card payment surcharge?

A surcharge is an additional fee added by businesses for customers paying by card. This is typically done to cover the costs associated with processing card payments.

Until now merchants could only pass on charges that reflect their card payment costs as per the Consumer Rights Act 2012. Now surcharges are being disallowed altogether as part of the Payment Services Directive (PSD2) legislation and businesses are forced to raise prices or simply absorb the cost.

Why is the surcharge ban happening?

The ban is aimed at improving transparency levels for consumers and fairness for consumers. This could suggest that some merchants have been adding surcharge fees that go beyond covering their card processing costs and have actually been making a profit on them.

Is the ban permanent?

The Payment Services Directive is part of an EU-wide move to standardise card payments across the continent. Coming at a time when Brexit talks are in their infancy, there’s little certainty around whether or not this directive will be repealed when the UK separates from the European Union.

Who is impacted the most?

Businesses that benefited most from the surcharge are said to be airlines, event booking websites and takeaway food services. Surprisingly, some others include local council services, HMRC and DVLA, however small businesses with tighter profit margins are the ones most likely to be affected by the new law. This means that at a first glance it would appear small businesses taking payments online, via card machines or over the phone could suffer. However, we ran a survey that revealed some interesting facts and figures, suggesting there’s more opportunity than you might think.

How to deal with the card surcharges ban

Understand why the change is good for you and your customers

Our nationwide survey of regular shoppers showed that 37% of small business customers would walk out they were faced with card surcharges. Of these customers, a quarter said they would never return.

Since the ban was announced in summer of this year, small businesses have lost £10bn in shopper walkouts. This lost revenue has actually done more damage to small business earnings than the elimination of the surcharge. In a nutshell, removing your surcharge and retaining these potential customers can in fact boost profits for small businesses.

Guy Moreve, head of marketing at Paymentsense said: “We believe the upcoming change will help small businesses as well as consumers. Shoppers previously affected by a potential surcharge are likely to see a saving of between two and three percent per card transaction. After January 13, everybody will know where they stand, and the days of surcharge-related walkouts will be gone. This can only be a good thing for the UK’s small businesses.”

More cardholders, more cards

According to the UK Cards Association, card has overtaken cash as the primary form of payment for retail transactions, with £10.3 billion spent in total last year. At the same time, the growing use of card payments means that cashless payments will soon be expected everywhere.

According to our research, over 50% of customers would walk out if they couldn’t pay by card. This is a clear indication that more cardholders are entering the market and, come January, we’re likely to see it rise again. Here’s why that’s important.

More cards, greater spend

Studies indicate that cards, in particular credit cards, boost impulse buying. Meaning people paying by card are more easier to convert, and those converted are likely to spend more.

Our research also shows that the current average card spend in small business is £135 per month. With surcharge removed and less inhibition around spending, it’s possible that this figure will increase.

Embrace technology

Additionally, with Contactless payments accounting for a third of all purchases and mobile payment technology making transactions increasingly seamless, merchants are likely to see less shopper walk out due to long queues and wait times.

It’s clear that with Contactless payments, staff can serve more customers in a given day, but in order to take advantage of this, merchants will need to ensure their card machines are fitted with the latest technology.

Taking payments online opens your business up to a whole set of customers. You can meet the modern appetite for online shopping and boost your overall sales profile. You can also create promotions and deals of products your customers tend to buy the most and allow them to order through your website. Read more on how to take payments online.

Our verdict

While many cash-based businesses may be resistant to card payments in the face of the surcharge ban, it seems that by looking at the bigger picture, there is far more to gain by accepting card payments.

If you don’t accept cards, now is the time to get set up.

  1. Choose a card machine or an online payment gateway.
  2. Get a quote in minutes
  3. We will set up a merchant account for you and enable you to take card payments in just 3 days.
  4. Embrace the surcharge ban and prepare for the influx of happy spenders.

Why wait? Take card payments in just 3 days.