Payment regulations in 2015 – read the small print
As a small business owner navigating employee management, stock control, accounting, access to finance and international market expansion, payment regulation is likely an unwelcome extra addition to the list of ‘things to think about’ in 2015. That said, changes to regulation in this space have the potential to affect the very lifeblood of an SME – the payment acceptance transactions that keep their business ticking.
The regulations in question affect the interchange fees that apply to a card transaction. These fees are charged by the cardholder’s issuing banks to the retailer’s payment processor to recover the various costs of providing the payment facility. The British Retail Consortium has been campaigning for over a decade for a cap on what they believe are unjustifiably high fees, which retailers must absorb into their costs.
Following strong lobbying, The European Commission will now introduce a cap on the interchange fees regulated by Visa for cross border domestic card transactions. Known as the Cross Border Domestic Interchange Programme (CBDIP), the move will enable cross-border payment processors to offer merchants a lower interchange fee of 0.2% (currently between 8 and 10 pence) for Visa debit cards and 0.3% for Visa credit cards (currently between 0.77% and 0.87% in the UK) for domestic transactions.
As a headline statistic, this is extremely encouraging news for retailers. However, there are a number of questions small businesses must ask themselves before they can make an accurate assessment of whether joining the scheme will benefit their bottom line.
- What type of card does my business take the most?
This is an important consideration. According to the British Retail Consortium Payments Survey 2013 (published in June), the average cost to a retailer of processing a credit card payment is now 40.9 pence, up 18.3% in the last five years. However, this type of card payment only accounts for 9% of transactions. CBDIP will primarily benefit businesses that accept credit cards. If you sell jewellery or electronics for example, this may apply to your business, though debit cards remain the card of choice for most consumers.
- Is your primary customer base domestic or from overseas?
CBDIP will only affect domestic payment transactions. This may not be an issue for many UK retailers, though will be a consideration for those based in popular tourist locations.
- Is there a chance that the costs might outweigh the benefits?
There is an annual fee of €100 for the first year of membership, which then goes down to €50 per year. Retailers should bear this ‘cost of change’ in mind when considering whether the scheme will deliver the savings they were hoping for.
- Are your payment transactions secure?
Only secure payment transactions qualify for this programme – i.e. if you capture a PIN on a compliant terminal or device, or use an authentication method such as Verified by Visa or 3D Secure for e-commerce. Any payments taken over the phone or via mail order (where the retailer has not taken a PIN) will not qualify.
- And finally… there is more regulation around the corner
The ever changing nature of the payment landscape means that when considering one regulation, it’s wise to look ahead to see what other changes are in the pipeline. From 1st March, just a few months after CBDIP is brought into force, the UK domestic Visa debit interchange rate will drop to 0.2% +1p for secure transactions, with credit card interchange rates (from both Visa and MasterCard) expected to be reduced to fall in line with CBDIP rates by the end of 2015. Given that it takes sixty days to enrol in CBDIP, merchants should evaluate how much they would save between the two regulatory changes.
The CBDIP may well deliver savings for small retailers, though it also comes with conditions, and costs that could offset headline savings. If you are considering making the move to CBDIP – contact your payment processor. They should be able to help you evaluate the benefits and drawbacks based on your business model. As in any area of the business, changes should be made with an understanding of all the small print, not just the headline.