How Will EU’s Card Surcharge Ban Affect UK Small Businesses

Card payments are overtaking cash payments in the UK with card and contactless payments proving more popular than cash this year, making up 54% of total spending in 2016. The Payment Services Directive, called PSD2, coming into force by 2018, has made it illegal for businesses to charge extra for using a debit or credit card in the EU, including the UK. This would mean that the little button to press to share the cost of the card charge when using SmartTrade App would be changed entirely. In turn, the small fee we often expect to be charged at the end of a transaction would no longer be there for consumers.

Or will it? The Directive does not render the charge obsolete; there is still a charge for companies to accept payments via debit or credit card and banks will still charge businesses for processing that payment. Therefore, whilst it might seem that consumers are more protected or face a more transparent cost system, those costs would be reflected in the price of the item or service and consumers would not know exactly how much. Price increases are expected, but the levels of price increase are not known.

What’s the direct effect on smaller businesses?

Larger businesses would be able to absorb these costs, which some already do. Smaller businesses may stop taking payments via card entirely. Smaller businesses would also be able to collectively increase prices, but the increase may reflect higher prices than if the charge would simply be tagged on at the end of the transaction. SmartTrade is also an app that allows transparency to prevail during a transaction. Every transaction makes it clear to consumers that either the business will pay the charge, the consumer will or it would be shared. The new regulations would mean businesses would have to predict the proportion of card over cash payments and incorporate that with the predicted amount they would sell in order to calculate the appropriate price increase.

Our conclusion

To absorb that price increase, though, it seems only fair to expect that there would be some margin for which a business would offset the chance they would not meet those targets. A higher price increase then surfaces. Consumers would not be able to expect a level price increase as the surcharges being charged are at different rates; with some charging a percentage of the price and some charging a flat rate of perhaps 50p per transaction. It would be almost shallow to imagine that the new Directive would amount to a slight price increase and greater transparency as prices are likely to rise higher than with the surcharge per transaction. The actual effects of the Payment Services Directive, though, still remain to be seen.

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