Warning: UK Card processing charges to change on the 1st March 2015
As part of changes in EU regulation surrounding the control of interchange (the fee that card issuers receive as part of credit card charges) and parity of those charges across Europe there are changes that are due to be made from March 1st 2015. Interchange has typically been the biggest cost element of a card transaction although varies significantly across Europe and the rest of the world.
Our partners released a statement earlier in the year regarding the apparent objectives of such changes which are intended to reduce the cost to the consumer for the goods and services they buy, bring parity across Europe and have talked through the impact such regulation might have. The reality is, whilst the largest element of a card processing cost is made up of interchange the significance in the overall cost of a product or service is relatively minimal and the cost to merchants to change pricing to reflect such a reduction in interchange far outweighs the potential benefit. We see no reason that the UK and the rest of Europe will not find itself in the same situation as Australia did when a similar initiative was implemented which resulted in a bottom line improvement for merchants, a negative impact on revenue to acquirers and ISO’s and no benefit whatsoever to the consumer.
Despite this feedback from the industry VISA has taken the decision to implement these changes in advance of the regulation change being finalised and from March 1st 2015 VISA Debit charges will switch across the whole of the industry will switch from a pence per instance (PPI) to a % of the value plus 1p with the cost of the transaction not to exceed 50p. The interchange rate published by VISA is 0.2% and 1p (vs. 7p per transaction currently) on top of this cost acquirers and ISO’s will need to factor in scheme fees levied by VISA which continue to be linked to the volume processed by that business as well as operational costs of supporting the service.
The Impact on Merchants
Depending on the average transaction value a merchant processes will dictate whether this will have a positive or negative impact. If a merchant’s transaction is under £40 then the likelihood is that this will have a positive impact on their business, for all merchants with an average transaction over £40 this is likely to have a negative impact on their business. Our average transaction across our merchant base is £47 however such averages are heavily affected by high value transactions from certain merchants.
Our partners view is that broadly this might be a positive change for certain SME merchants and reduces the cost of low value transactions for merchants, encouraging further transition for cash. Across the wider merchant base and industry though it isn’t expected that such a change will be positive for the majority and is likely to actually generate more for card issuers as part of interchange charges whilst costing acquirers and ISO’s to implement without the benefit being seen by consumers in their spending.