Time for action on abusive card charges

Eyes will be on the British government in 2021 to start paving a new and substantially different pathway for the UK which holds enough merit to justify the upheaval, bitterness and loss caused by its advocacy and delivery of Brexit. One relatively uncontroversial area is the reform of regulation governing retail payments in the UK.

by Andrew Cregan, BRC, Director of Payments and Finance

For most of us payments usually involve cash and (plastic or virtual) cards. Cards made up almost 80% of retail purchases by value in 2019, or nearly two thirds by volume. The remainder was accounted for by cash. We are yet to see just how much the pandemic has shifted retail payments for the long-term towards cards, but there is little doubt that the share of card payments has grown substantially further in 2020.

“It’s vital then that the government takes action to tackle excessive card costs.”

Without action we will see businesses put under further pressure and it will be consumers who are forced to pay the price.

While card payments account for four in every five pounds spent in retail, they also incur the largest charges for shops. Retailers spend at least £1.1bn annually to be able accept payments from their customers, of which the vast majority (£950m) is for cards. Ultimately these costs, at almost £40 per household, are reflected in consumer prices.

The international card schemes – a duopoly controlling 98% of the UK market – levy hundreds of fees on transactions across countless variables making it impossible for even the largest merchant to accurately forecast card costs. Complex billing structures have further become a powerful tool to bamboozle political, regulatory or legal attempts to rein in increasing abuses of the schemes’ dominant market positions, which has seen scheme fees billed to merchants double in less than five years.

Evidence from annual BRC Payment Surveys has shown that card scheme fees rose 39% in 2017 and 56% in 2018, measured as a percentage of retailers’ turnover, with businesses having also received notices in the past year of new fees that will now be charged to accept payments online.

Last year the British Retail Consortium, British Independent Retailers Association, Association of Convenience Stores, Federation of Small Business, UK Hospitality and Which? came together to call for decisive action to protect Britain’s businesses and consumers from excessive card fees. Among the measures urged are investigation of card schemes for breach of competition law, expanding existing regulation to simplify card fees and cap scheme fees, and abolition of card fees paid to the customer’s bank – as advocated by the UK Supreme Court in 2020.

The organisations are also calling for further measures to protect consumers’ access to cash, which remains an important method of payment, particularly for many vulnerable people.

The calls come amidst a series of reviews underway by the government and the UK’s Payment System Regulator into cards and payments more widely. Much of the rulebook on payments was forged in Brussels but following the UK departure from the EU there is now greater scope for national action in the UK card market.

In this edition, we spotlight on the latest in retail in the US – as it begins a new era in 2021. We hear from David Kaufman and Staci Jennier Riordan of Nixon Peabody LLP which is a member of the global TerraLex network of law firms, of which RPC is a founder-member and co-chair of its Retail Sector Group.

This article was written by Andrew Cregan, Director of Payments and Finance, BRC as part of RPC's Retail Compass Spring edition 2021.