25 April 2007
The great credit card rip off
Although it is as a consumer faced with notices such as "use a credit card and you will be charged a minimum £4.95 surcharge" which prompts me to write this, let me give some background in my experience.
During the height of the dot com boom I was an e-commerce consultant. When the market peaked in early 2000 I was in the middle of gaining e-commerce accreditation for the Scottish Tourist Board's project Ossian. Scottish Tourism employs about 8% of the Scottish workforce, and the industry is worth approx £4.5 billion to the Scottish economy. Following my stint there, through three separate e-commerce platforms I went on to be Project Manager for the tesco.com grocery site, the world's most successful online grocer. I won't bore you with further figures, you can read them here. So I have a bit of an inside perspective on the whole credit card transaction fee nonsense. These days, I'm currently self employed and doing quite well.
visitscotland.com when I was there only took 10% of the value of a booking for automated sales (via the web). Therefore for a typical £40 online booking for a night in a cheap hotel, the actual value visitscotland.com would process would be £4. The remainder was paid direct to the establishment. No credit card fee was charged by visitscotland.com. Indeed if you compare this £4 charge it isn't that far off the core price of some Easyjet flights if you book far enough ahead. Yet, Easyjet charge a minimum credit card fee of £4.95 for an online booking - a fee that visitscotland.com, also in the travel business, managed to do entirely without. If it wasn't for the government taxes, the credit card fee would be pretty much doubling the cost of some Easyjet flights. Visitscotland.com incidentally did charge a 2.5% credit card fee for self catering bookings via the contact centre after pressure from the industry, however for serviced accommodation bookings there was no fee yet both bookings were going through the same payment gateway (SecureTrading). Apart from putting the Self Catering industry in a bad light (see bank of Self Catering Ltd), it is inconsistent that a £500 hotel booking should have no charge but a £500 self catering booking had a 2.5% fee, yet the payment for the latter was often taken several months in advance.
When I was in Skye last year, the local shop Ragamuffin had a £50 minimum for a credit card transaction. This would have been bad enough in the middle of Edinburgh where their other shop is, surrounded by banks and cashpoint machines and alternative methods of payment. However, in my case I was in Armadale, Skye. Approximately 40 minutes round trip by car (if you have one) to the nearest town (Broadford) where there is a cash machine. So cash was at a premium as I didn't fancy spending my holiday driving up and down taking money out and clearly there were some things such as ice creams that I genuinely needed cash for. Like many people, I don't ordinarily carry a cheque book either as so few places accept them now, however you can see from this list (PDF) that for a business paying in more than one cheque at a time, the additional cost is a mere 25p per cheque. This 25p is a charge I would happily pay if the alternative is a 40 minute car journey. 25p is also a lot more reasonable than the £4.95 easyjet credit card charge - bearing in mind that cheques are a manual payment and credit cards are automated it certainly makes me question how reasonable a credit card charge should be. I also don't accept the concept of a "minimum fee" for a credit card transaction as the fees for credit cards are usually either a flat fee per month or a fixed percentage per transaction, meaning that 100 £1 transactions would cost the merchant the same as 1 £100 transaction in fees.
Let's now look at the actual charges merchants pay that they use to justify these "minimum transaction amounts", "credit card fees" and so on.
Here is a selection of popular e-commerce payment solutions. At the high end, it's 3.8% per transaction but 1.5%-2.5% is more typical and as the article shows, for a flat fee of £20 per month you can get away with no transaction charges at all. Indeed this can be as low as £10 for a lower volume mail order set up. For the top end, Tesco uses Commidea. Commidea also caters for the smaller retailer and like Protx charges no fees per transaction, just a low monthly fee. So with either system it doesn't matter how much the customer spends. Indeed, I would like to put small amounts on my card to keep all my business spending in one place. JD Wetherspoon's in Belfast however wouldn't let me put £4.99 for a meal on my business card due to their £5 minimum card fee. Perhaps they are with the wrong payment system?
Clearly there is a lot of variation in card charges to retailers (merchants) but a simple bit of shopping around can round these up into one simple, fixed fee. Nowhere have I seen any card processing company that charges a minimum card fee of £4.95, so there appears to be no justification for Easyjet's excessive charges.
So consumers, if you feel that "minimum credit card transaction value" or "credit card surcharge" or the like are annoying you, just vote with your feet and shop elsewhere and give the retailer a copy of this posting. After all, if the retailer chooses a more cost effective payment method, not only will we hopefully see minimum fees and surcharges disappear but retailers themselves will move to more cost effective solutions and make more money generally.
The thing is, it becomes unprofitable to process small amounts -- because merchants pay an interchange fee that's ostensibly supposed to pay for transaction costs, but really goes to pay rewards cards, and constantly increases -- so this is why they do it.
The group I work with is trying to put some pressure on Visa and Mastercard, the most problematic card associations (at least here stateside).
I hear your complaint, but they're only trying to keep from losing money on that transaction.
Is there any UK law that prohibits this "Minimum Charge" ?
What about the fact that these retailers display the card logo ?
By displaying this logo, are they not bound to accept any amount no matter how small ?