onlysuites

So the European union imposed a cap on the interchange fees at 0.3%

This is meant to help the consumers and retailers. So far I have seen the interest rates go up on CC's, yearly membership fees have gone up, number of points earned will no doubt come down once the card companies come to renegotiating their contracts with the airlines.

I have just had to pay a £15,000 bill and got charged 3% for using a cc meaning the company has made £450 off me and only had to pay £45 to the cc company for processing it.

Paid a £230 bill to the government and got charged £3 for doing so. So the government who should be monitoring this have made £2.41 extra off me!

AllieKat

Absolutely, the fee cap is so low it means shops pay less than the cost of handling cash. Yet, the one thing it should do (and lower prices isn't it) - increase acceptance - still won't happen. Because the card fee was never the issue, the inability to hide money was. Also, as I'll explain below, small shops don't really pay less - the fee cap was designed to help big businesses, but not small ones. I'll name and shame Happy Lemon in London Chinatown - great tea, but they charge £0.50 if you use a card for under £5. I don't know if they realise how costly that is to business. I'd be there a lot more often, but instead I only go if I'm going with a friend and I'm buying hers as well. I'm probably not going to have cash for them.

Oh, and remember, merchants aren't necessarily paying less, the fee cap is on wholesale, not retail, rates, so small merchants pay as much as they always have in some cases. It's mostly meant to help Tesco, Asda, Morrison's, Waitrose, Boots, Pret-a-Manger, etc. They're the ones who fought for it, and the ones who benefit as they deal directly with the card brands. Small businesses will see much less (if any) benefit.

onlysuites

Both my transactions were with bigger merchants so they would have got charged the lower rates but made more money off me. Its kind of like the Airlines charging YQ when Oil is at its cheapest for years.

AllieKat

Exactly, tho I'm not sure tax is something with a bigger merchant. Governments aren't good at negotiating this stuff...

And to me credit card fees are a good way to keep me from going back somewhere, especially now with the 0.3% cap (yes, that only applies to wholesale, but still).

Also, to see how little benefit it has to merchants, look at iZettle. Their pricing is still 2.75% for lower volume - same as Square in the US.

Interchange caps hurt consumers, and help credit card processing companies and the largest of stores (the ones that already have massive benefits). Really, though, since consumers can't do much either way, I see the caps as mostly a way to try and help large businesses push small independent shops under.

onlysuites

That's not good.

Sintaku

Stores are free to charge however they want for you to use a credit card. I generally don't go to any stores that charge for credit card usage. I pay HMRC by credit card and all my bills (sometimes at a surcharge) but my rewards either equal or exceed the fee.

AllieKat

Not true:

https://www.gov.uk/government/public...ent-surcharges

The US is similar under the CARD act. They can only charge what it actually costs them. So, e.g., Happy Lemon's 50p surcharge is illegal.

onlysuites

This is what I thought too.

So under the new law's can businesses still charge say 3% when they only have to pay .03%?

AllieKat

First, no one is paying .03%. The cap is .3%. Secondly, many businesses pay far more than that... the difference being additional profit for their acquiring bank.

They are not allowed to charge more than their actual cost in the UK.

In the US they are not allowed to charge more than their actual cost or 4%, whichever is lower.

Clearly, this isn't enforced. But that still doesn't mean they can legally do it...

onlysuites

I meant .3% only. Sorry my bad. They are not allowed but they are and even government websites are doing the same.

AllieKat

They can charge THEIR actual cost, which may be a lot more that .3%, especially the way government contracts work.

Public-sector is weird. For example, I can't buy from Apple anymore, despite them giving us a substantial education discount, because they refused to make a formal bid. Instead, I have to pay more and get worse service to buy from a third-party vendor who I won't name, because they submitted the lowest bid on Apple computers.

This is not unique to the UK, as I've worked at universities on both sides of the pond and seen similar things.

onlysuites

I thought it was capped at .3% now though?

AllieKat

Did you read what I wrote in the posts above about how that only applies really to large businesses that work directly with the networks or have massive amounts of negotiating power with their acquiring bank?

The 0.3% cap is what the networks are allowed to charge acquiring banks. Acquiring banks can charge merchants whatever they want, and the way public sector contract negotiation works, governments could easily be paying 3-4% still.

onlysuites

Thats a little silly. Only works out well for the bigger business.

AllieKat

Absolutely. The fee caps are bad for small businesses (as they allow large corporations to cut their costs relative to the little guys even more than they already can), they're bad for consumers (they reduce credit card rewards and benefits, and raise the cost of borrowing), and they're... neutral-ish for banks (issuing banks lose, acquiring banks however can win by having a larger profit margin on what they charge small businesses). The only real winners in the interchange fee cap game are the likes of Tesco/Asda/Sainbury's/etc.