Many of our client businesses and local authorities choose to add a surcharge when customers pay by credit card.
The rules about surcharging are simple: Surcharging is allowed only to the extent of passing on the cost of processing the payment i.e. it is not permissible to gain additional profit through surcharging.
Until now, the negligible cost of processing debit card payments has effectively meant that consumers with debit cards could avoid surcharges by using their debit card rather than their credit card. However, Visa’s new charging scheme for debit cards is likely to change that for high value payments.
It used to be that the “interchange” charge that Visa made to card payment processors (known as the acquirers) was a fixed amount of 8p per transaction. The acquirers added their margin, of course, but even if the total charge ended up as high as 16p, there was no point surcharging for this amount.
Visa debit interchange is no longer fixed, however. From the 1st March 2015, the charge is now a combination of a percentage of the transaction value (0.2%) plus a fixed cost of 1p or 11p depending on whether the transaction was “secure” or not.
Whilst Visa’s charge to the acquirers is capped at 50p, 75p or £1.50 (depending on the card type and whether it is “secure”), the acquirers do not have the technology to cap their charges in this way.
We are seeing many cases where acquirers are charging 0.5% of the transaction value, or more.
This means that the processing costs for high value debit card payments are now significant enough to warrant surcharging.
If you are a business or local authority that is considering adding debit card surcharging however, our advice is not to do so. Here’s why…
Firstly, your customers will find it hard to understand why you are imposing these surcharges when most other businesses are not.
On a practical level, as things stand, only Visa debit cards are affected. Imposing a surcharge on all debit card transactions would therefore break the surcharge regulations. Of course, you could add the surcharge only to Visa debit cards – but this is likely to incur significant development costs and it is currently uncertain how MasterCard will respond.
Instead, use the Visa cap to your advantage and renegotiate terms with your acquirer, or get an independent specialist to review all your card processing costs. Our experience is that, even accounting for the increase in Visa debit charges, most businesses and authorities can save over 20%.