In this article, Richard Bradley outlines the changes in credit card processing charges across Europe, explains what these should mean for your business, and shares expertise on how best to ensure you don't pay over the odds or get fenced in.
Why are the changes taking place?
In anticipation of EU regulation to align charges for processing card payments in Europe, Visa and MasterCard are making changes to their transaction fees across all card types over the next 12-18 months. The important thing to bear in mind here is that the ruling only affects Visa & MasterCard and what they charge your merchant services provider (WorldPay, Lloyds Cardnet, Barclays Merchant Services etc). Visa's charging will also have the same tariff for chip & pin and a secure e-commerce transaction, which is good news if you trade on-line.
However, here's the main point. Your merchant services provider is not restricted under the EU ruling in what they decide to charge your business!
What are the changes?
Debit Cards - From 1st March 2015 Visa moved its charges for debit card payments from the fixed pence per transaction charge, to a charge which is mainly % based.
This is good news if your business is accepting debit card payments with a transaction value below £35, as it should mean a reduction in what you currently pay as a fixed pence per transaction charge. As an example a transaction at £10 which was previously charged at 19p, should reduce by over 40% to nearer 11p.
If the cost of your goods or services is above £35 it will result in an increase, with significantly increased costs the higher the transaction value. An example here would be a transaction value of £200 which was previously charged at 19p and will now be charged at over 50p, which is an increase of over 250%.
Visa have introduced a cap for higher transaction value payments, however the merchant services providers won't necessarily pass this on to you! You could therefore end up being charged over £8 for a Visa Debit Card transaction of £2000, where a cap would have reduced this to £1 for a secure chip & pin or e-commerce payment.
Key fact - Over 70% of card transactions in the UK are on debit card and this will only increase as the switch from cash to cards continues and contactless payments increase, so the pricing for debit card payments will become more important.
Credit Cards - These are currently charged as a % so you'll be used to paying anything from 1.1% to 2% on a transaction depending on the card type (business, premium, personal).
The great news here is that these charges will reduce over the next 12-18 months and as it's already a %, the savings should be reflected in all transactions no matter what the size (assuming your merchant card services provider passes a fair % of this reduction to you!).
MasterCard are reducing their charge to your merchant services provider gradually over the next 12 months and Visa are expected to reduce their charge in one go, in 2016.
The great result for you should be that your credit card transaction charges should have reduced by 20-30% by the end of 2016.
So, what should you be doing?
Be alert and know what you're paying - Now is the time to read carefully any correspondence you receive from your merchant services provider. In particular, check your merchant services statement from April onwards to see what impact the Visa Debit Card pricing has made to your charges.
"Marry in haste, repent at leisure" - Contracts can be for up to 5 years and although you can move your card processing the cost of cancelling is very likely to be prohibitive. So, before signing any new contracts or signing with a new merchant services provider, whether directly or through a sales agent - ensure you find out what their policy is re capping large debit card transactions and whether they will pass on the credit card reductions due in the next 12-18 months? Alternatively, find an advisor who is prepared to take the time to really understand your requirements and can secure tailored flexible solutions e.g. perhaps by selecting hardware that is "unlocked" or provider agnostic, keeping your options open to switch later if needs be.
Seek independent expert advice - Be careful not to use a broker or sales organisation which is potentially conflicted. Now is the time not to be sold headline rates and the service element really matters, more than ever before. A good specialist should ensure that debit card caps are provided, that lower rates are applied for low transaction amounts, and that you secure the reductions in credit card pricing when these happen. They will know in advance and rather than just alerting you and they should use their muscle to ensure you benefit to the max when rates are changing.
Finally, stay in touch with technology - It's moving ever faster in this area. Make sure your specialist keeps your business up to date with the latest payment terminals, mobile solutions and payment gateways for on-line business.
by R Bradley | 14 July 2015