New EU rules come into effect today which will mean customers can’t be penalised with extra fees for choosing to pay by credit or debit card.
But what will the Payment Services Directive mean for businesses?
Why were some businesses charging extra for card payments in the past?
Up until now, firms were allowed to pass the costs of processing a card payment on to their customers.
When you choose to pay via credit or debit card, either in a shop or online, the retailer has to pass a percentage of your money on to the company which organises the payment – usually either Mastercard or Visa.
Some of that money is then forwarded to your bank via an ‘interchange fee’, which the bank uses to fund the cost of issuing your card and managing your electronic payments, and to the processor who owns the technology platform used to transfer the money.
Many businesses and websites have been adding those extra costs on to your bill, either in the form of a percentage value of the transaction or through a flat card fee.
Government bodies have also been guilty of this; some councils and public services have been charging more to pay with card rather than via cash or direct debit.
But why did paying with a credit card often cost more than a debit card?
Although payments using debit and credit cards are managed in the same way, most banks see more risk in sending a credit payment as opposed to debiting money directly from your account, and so they charge higher interchange fees.
And even then not all credit card fees are equal – American Express charges firms a higher rate to process payments than Mastercard or Visa, which is why some businesses decide it’s cheaper not to accept them at all.
So what’s changed?
Essentially, the only thing that is now different is that companies are no longer allowed to pass these extra charges on to their customers; consumers must pay the same price for goods and services whether they choose to pay with cash or with plastic.
So the companies and businesses you buy from will now have to absorb the extra costs of credit and debit payments themselves.
So will this mean I’ll be charged less?
Some firms, including food delivery firm JustEat, have already announced that they intend to simply extend the extra fees to all customers regardless of their payment method, rather than scrap them for those using cards.
By choosing to levy fees on those using cash as well as those using plastic they are still treating all payment methods equally and so are within the rules.
Other companies are expected to raise prices in order to pay the extra costs.
Could small businesses be hurt by the changes?
According to some, yes.
The Federation of Small Businesses (FSB) said the proportion of small firms reporting a rise in costs was at a five-year high.
FSB chairman Mike Cherry said: “Removing their freedom to share the burden of card payment fees will give them yet another outgoing to worry about.”
There are fears that the travel industry will be particularly affected, as the need to process payments in several currencies means they may have to shoulder higher costs than other sectors.
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Will this ban on fees remain in place after Brexit?
The Government has said this directive will be part of UK law after the country leaves the EU