Beyond the Transaction: Every Transaction Has a Story

Removing surcharging offers true consumer choice

By Mark Barnett, Divisional President, UK, Ireland, Nordics and Baltics, Mastercard

Last week, the UK Treasury announced a ban on the practice of surcharging consumer cards as of next January. This timing is line with the introduction of ‘PSD2’ the EU’s payments legislation. However, the UK is going further and banning surcharges imposed on all consumer payments, including American Express and Paypal transactions.

At Mastercard we have always believed in consumer choice, with the confidence that people will switch their payment behaviour to cards or digital payments because of the convenience, ease and security they offer. However, card surcharges have acted to distort this value judgement for consumers.

The plain reality is that every payment method has associated costs for the shop or business receiving it. The difference between cards/electronic payments and cash is that the cost of cash is not transparent. Independent studies indicate cash costs developed economies as much as 1.5% of GDP, on this basis the logic of surcharging consumers for card usage is hard to stack up.

So the removal of surcharges acts to level the playing field and is great news for UK consumers. It means that from January onwards, they will have a true choice over which payment method to use without being penalised for choosing a retailer’s non-preferred option.

Existing legislation does place some restrictions around surcharging, even today businesses are not supposed to surcharge more than the actual cost incurred by accepting the card.

Unfortunately, these restrictions can be interpreted very broadly and too often surcharges have become an additional source of revenue for businesses.  Equally the enforcement of existing rules has been challenging. However we are confident that the priority the Treasury has given to these new rules will shield consumers from unpleasant surprises at the till or checkout button and provide the impetus for robust enforcement.

The broader regulatory change has already delivered financial benefits to retailers and other businesses. In December 2015, the fee which banks earned when a customer used their card to buy something – the interchange fee – was reduced, especially so on credit cards where the fee was more than halved.  This regulatory change has helped reduce the overall cost of accepting cards.

In addition, without the risk of being surcharged, consumers are more likely to use their cards and reduce the amount of cash a shop holds. This has the further benefits of the shop being a safer place to work in and reduces the costs linked to cash-handling, security and transportation which not all retailers put a price on.

Over the next six months, there is still much to be done to inform businesses as to the removal of card surcharging, but we remain committed to continuing to working with all our acceptance partners across the country to ensure that both retailers and consumers enjoy the benefits that electronic payments bring.