Who says the EU does nothing for us?

Garage owners are already benefitting from a reduction in credit card transaction charges following the introduction of new EU legislation last year and now the UK payments regulator has issued further guidance underlining the cap on credit card charges.

The Payment Systems Regulator’s (PSR) published ‘clear final guidance’ on the European legislation called the Interchange Fee Regulation (IFR) surrounding payment cards at the end of March.

The IFR resulted in the UK’s Treasury department setting caps at 0.2% of the value of a transaction for debit cards and 0.3% for credit cards.

In short it means you pay your bank a reduced charge for the privilege of taking card payment from your customers. In fact, the drop is estimated to be around 70% in fees charged for credit cards.

Before the IFR was introduced, the charge from the likes of MasterCard and Visa was around 0.8% for credit card transactions whilst some premium cards were charged at an even higher rate.

Other EU countries, most notably Ireland and Spain, have set even lower rates. The UK could choose to do the same but has stuck to the EU requirements, which are a floor and not a ceiling.

For your average service, we are not talking a huge amount of money, but anything which means a few extra coins in the pockets of our customers rather than their banks, gets our vote! To give you an idea, if you sell used cars as part of your business and undertook a transaction of £3,000 which the customer paid by credit card, savings for the business would be around £15 in fees.

The regulator also found that American Express, the only card scheme which could have been exempt from the cap, had to comply due to its above 3% market share. Its findings formed part of the clarification it issued last month.

The IFR applies to the fees paid by the bank of a merchant, such as a dealer, garage owner or retailer to the bank of the card user.

Traditionally, it was the merchant i.e. the business selling the goods or service which paid the fees. Effectively, your bank passed the fee imposed when your customers pay by card, with credit card payments attracting higher fees, back to you as part of the ‘merchant service charge’. It is those fees which have now been capped by the EU regulation.

The Payment Systems Regulator (PSR), took responsibility as the economic regulator for the £75 trillion UK payment systems industry in November, and published its draft guidance on how it intended to regulate new European legislation covering payment cards in December.

Its final guidance published at the end of March underlined how the regulator intended to enforce the legislation in the UK as well as clearing up the issue of three-party card schemes, whereby three parties form the scheme – the cardholder, the issuer and the financial institution, such as American Express.

The EU legislation came into force in June last year but it wasn’t until the end of the year that the card payment changes came about with the capping of fees known as interchange costs being one of the most significant elements. More guidance is due in the summer from the IFR…

When the clarification was issued, Hannah Nixon, managing director of the PSR, said: “The intention of the IFR, as well as providing savings to consumers by reducing interchange fees, is to boost transparency and remove barriers so others can enter the market and compete. We will be watching with interest to see how the industry adapts to the regulation.

We know that businesses are keen to see the fee caps reflected in their merchant service charges. Our guidance clarifies the IFR for the UK card payments industry and we would expect to see the benefits passed on to merchants in the fees that they pay. However, if merchants remain unhappy they should contact their acquirer and consider shopping around to get a better rate.