UK Government to ban "rip off" card surcharges

Surcharges on card-based transactions, SCT and SDD will be banned by the PSD2, which is going to be live from 13th January 2018. 

The related article in the telegraph shows more than anything that there is still a widespread misunderstanding of the recent EU driven changes to Interchange and the impact on retailers.

Surcharging as a revenue stream has always been distasteful to the end customer, but the industry has done little to manage impact.

The timing of this announcement is also interesting as it closely follows the announcement from Visa that they will pay retailers to be cash free.

I thought the 10% surcharge I mentioned in How To Fight Credit Card Surcharge And Take CashlessIndia To The Next Level was high. I'm shocked to learn that some merchants charge as high as 20% for accepting credit card payments. Normally, I'm in favor of market forces slugging it out but, in this case, this is indeed a "rip-off" and I hail the UK government's move to ban such surcharges. That said, ground-level enforcement of similar bans has been a challenge in other countries that have mandated them. It'd be interesting to watch how UK government plans to ensure that merchants comply with its ban in actual practice.

That was a fair comment from you Ketharaman. I think that a very effective way that can stop non-compliance, is to get the public to ring a freecall phone number that should be free even if you use a mobile phone, to report any surcharges that discriminates against anyone with a credit or a debit card, to the government of the United Kingdom. Once they have been reported and fined in an appropriate court of law, compliance will be forthcoming. Most recalcitrants will eventually fade away given time!   

WP: Won't this just lead to higher prices, even for those paying cash?

Spare a thought for the small merchants who pay up to 50 pence per transaction in processing fees, and someone might come in just to buy a newspaper in the mornings. 

WP: I guess they'll just continue having a minimum spend for cards

@JohnCandido: Agreed. I also recommend a Tweet button at the merchant premise. One push and all the merchant-related details are geo-sensed automatically and sent immediately to the authorities.

@AnonMember: "Higher prices for cash payers" is an old issue and is called Reverse Robin Hood Effect.

As far as I'm aware, the ban on surcharging only applies to consumer cardholders. Customers presenting a business or Corporate card can still be surcharged by merchants, because back in 2015, the European Commission only regulated the fees associated with Consumer cards. Hopefully when they (the Commission) undertake their review of that regulation again in 2019, they will take the opportunity to regulate fees on Commercial cards too.

What an oversight! Oh well, you cannot expect perfection. What will be a saviour of sorts for all merchants who have a concern about absorbing credit card surcharges, is when all physical cash is replaced with a national virtual currency. With this in place, copping credit card surcharges would be proscribed by the majority of the population using their own funds in virtual form. I think that the very best days of the credit card are coming to an end, and it is about time too! Why would anyone with half a brain would want to run the risk of incuring interest rate charges? Credit cards have served their purpose by allowing their users to sample what a cashless society may look like. They have also served banks and credit card companies with a dream run in profit making in one of the industries most unfair commercial contracts imaginable courtesy of very high interest rate charges.  

Why would anyone with more than half a brain jump to the conclusion that credit card means interest charges?

I got my first credit card 30 years ago. Since then, credit card is my go-to payment method for more reasons than one: Deferred payment, chargeback protection, rewards. During this period, I've incurred interest only once and it was entirely by my choice. The tax year end was fast approaching, I wanted to open a Public Provident Fund account (India's equivalent of pension) to save tax, I didn't have the spare cash to deposit into the account, therefore took a cash advance on my credit card to fund my account opening. The tax I saved was 5X the interest I paid. 

It's not a natural law that credit card means interest charges. And even when it does - out of customer choice - my example shows that it can result in very profitable PFM outcomes.

There are always exceptions to the rule Ketharaman, and your exceptionality regarding the proper use of a credit card account is simply outstanding. Most people do not have your outstanding record of timely repayment of the monthly balance in full. Kudos to you, for doing so! For the majority of people a Debit card or an Eftpos card is more than enough to cater to their needs.  

WP: I'm with Ketharaman.  Never pay interest. It's all about the consumer protection and air miles. Only today (my first day abroad since Travelex Supercard was withdrawn) have I started using my Monzo card abroad. No rewards (yet), but at least they don't rip you off on fees or exchange rates. 

@JohnCandido:

Much as I'd like to think that I'm doing something exceptional - and be lauded for it - figures don't bear me out: 70% of credit card holders in India are so-called "Transactors" and pay off their monthly balances in full and don't incur interest charges. Only 30% are "Revolvers" who don't pay off and do incur. In USA, Transactors are 35% and Revolvers are 65% (Source). 70% and 35% are not exceptions by any stretch of imagination.

I could argue that cash is adequate and that there's no need for any digital payments including debit card. The point is not about adequacy but about choice and suitability for wide-ranging usage scenarios. Credit card is arguably still the only instrument suitable for handling emergency use case. People tend to forget that, while a debit card enables cashless payments, it funds payments only up to the bank balance. In emergencies, such as hospitalizations, very few people have enough money in their bank account to meet expenses via debit card. In any case, it's poor PFM to keep big time money in a low-interest bearing checking account just to be able to use a debit card to tide over a potential emergency. It's better to keep that money in a higher-interest bearing fixed deposit, use a credit card to meet the emergency expense if and when it arises, then break the FD prematurely to pay off the credit card bill a month later.

None of this is rocket science. If the average credit card holder lacks the basic discipline and ability of how to use a credit card responsibly, that's no reason to ban credit cards. Governments all over the world allow the sale and consumption of many other potentially more harmful things by simply mandating a "Drink responsibly" kind of warning on them. At most, they can insist that all credit cards should carry a warning message such as "Spend responsibly"!

I would validate all of your points Ketharaman, as well as others who support credit cards for similar or different reasons. I think that having one for emergency purposes that does not have an annual fee and no doubt a very limited or zero rewards scheme because there is no annual fee, would make a lot of sense to me. I am a transactor as well and have had credit cards for over 20 years without ever paying any penalities, costs or interest charges for being late.

As a guess, it would seem that around 50% or more of people are transactors and are very conservative with their credit cards, or at least guess this scenario to be the case globally without citing comprehensive data on the issue. On reflection, banning credit cards will not work and is a rather silly idea.

Thinking about all credit card holders who do not pay their bank or credit card institution in full and on time, i.e. all revolvers. They would be far better off on a debit card or an eftpos card, using Bpay, Direct Debit or Direct Credit, paying for items in a cashless manner straight from their funds from their own bank accounts.

This is just common sense.

The other good that can come from them shifting their allegences to debit and eftpos, is that saving money and having a personal budget should be easier to follow when you either use cash, debit or eftpos in the vast majority of your transactions, rather than slamming everything on to a credit card. While credit cards are convenient, they can distort your sense of net worth, play havoc with using a budget and in attaining any or very little savings. 

As a general rule of thumb, the wealthier you are the likelihood is that you are a credit card holder who is a transactor. The poorer you are the likelihood would tend to be that you would be a credit card holder operating as a revolver, or that you have 'seen through them' and exclusively use a debit card or an eftpos card for the vast majority of your transactions. Of course there are exceptions to the rule in both cases.  

While I remain a fierce advocate for a cashless society and for it to be realised by public debate and the natural evolution of technology and their employment by businesses. With the rise of virtual national currencies or virtual global currencies, the integrity of their use tempered and 'policed' by the blockchain and national legislative standards. This does not mean that whenever we become a cashless society that necessarily means that credit cards should be taken up wholesale by people from all walks of life.