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As card use soars, UK retailers demand urgent intervention on interchange and scheme fees

As card use soars, UK retailers demand urgent intervention on interchange and scheme fees

The British Retail Consortium is calling for emergency intervention to prevent price gouging by the major card schemes after unveiling figures that showed a dramatic shift from cash to cards during the pandemic.

The BRC report reveals that in 2021, as stores closed for lockdowns and the public was advised to use contactless payments, cash usage fell by half to just 15% of all transactions, while 82% were made on credit or debit cards. More than four-in-five card transactions were made using debit cards, with the rest made up of credit and charge cards.

As a proportion of total money spent, cash accounted for just 8% of consumer spend (down from 15%), while credit cards rose slightly to 23%, and debit cards rose significantly to 67%.

The rise in the use of card payments in part reflects the increase in online shopping in 2021, when 48.6% of non-food items were purchased online. This figure has fallen to 39.9% in the first 11 months of 2022, as more people returned to the high street as the pandemic eased. As a result, it remains to be seen whether this shift to card payments will stick.

While card usage soared, so did the costs associated with accepting these payments, says the BRC Retailers incurred costs of £1.3 billion just to accept card payments from customers in 2021. Debit cards, which accounted for the majority of transactions, saw scheme fees rise by 28% compared to 2020, and total Merchant Service charges increased by 12%.

The lobby group says this translated into an additional £141 million in costs imposed by card firms onto retailers to process debit card transactions.

Mastercard has hit back at the BRC's claims. In a statement to Finextra, the card company says: "We simply don’t recognise these overblown claims of the BRC. Mastercard offers UK retailers one of the lowest cost and safest ways to accept a payment. On a typical £50 sale, Mastercard’s fee is just 6p and this allows us to provide the services our customers can rely on. Without electronic payments, millions of consumers can’t make payments and businesses won’t make sales.”

The Payment Systems Regulator (PSR) has kicked off two market reviews into card fees and post-Brexit interchange charges levied by the card schemes on UK merchants. However, the watchdog has warned that merchants may have to wait a further two years before it concludes its investigations.

The BRC is calling on the regulatory agency to enact temporary interventions to stop card fees rising during this period. The retail body is also demanding the removal of interchange fees and for UK Treasury to cpnduct its own review into the cost of accepting cards

Hannah Regan, payments policy advisor, British Retail Consortium says: “With the public in and out of lockdown and cash usage discouraged last year, over 90% of retail spending used debit or credit card. With card usage soaring, already hard-pressed retailers had to pay huge sums to accept these payments. We need urgent intervention from the Payments Systems Regulator and the Treasury to stop card schemes from abusing their dominant market position.”

Comments: (13)

A Finextra member
A Finextra member 13 December, 2022, 16:46Be the first to give this comment the thumbs up 0 likes

I will be using cash on the high street whenever possible, despite working in the cards industry.......  I like the idea of choice, and we need to press the post-COVID reset button in some ways....  Appreciate the value and reasons for Interchange, dont disagree it needs to be there, just dont want to force retailers to have to pay it! 

A Finextra member
A Finextra member 14 December, 2022, 07:40Be the first to give this comment the thumbs up 0 likes

By using cash you cause society an additional cost pressure spent on non-productive activity:                       atm withdrawal free for you but costly to provide; cash handling cost at merchant outlet and bank; cash in transit CO2 emissions; increased risk of theft/robbery losses for merchants; increased opportunity for tax avoidance and financial crime  due to cash anonymity and lack of audit trail...  In all you contribute to a less sustainable and more insecure world and cause government to have reduced capability to care for the ill and elderley and school the young. Demand more cost effective electronic payment means instead. 

 

 

A Finextra member
A Finextra member 14 December, 2022, 08:55Be the first to give this comment the thumbs up 0 likes

Use it or lose it. Look at the amount of employment cash handling creates.  Once we are forced to choose between using Visa or Mastercard as our only payment methods, and we see them wining and dining our regulators and senior bank staff at global events we are probably going to pay in kind.....  when was the last time regulators or central banks took Cash to court over payment handling costs? 

A Finextra member
A Finextra member 14 December, 2022, 09:22Be the first to give this comment the thumbs up 0 likes

If I recall correctly, there was a huge amount of advertising during this period promoting all the card schemes, there were false claims that cash carried CV19 more than cards and not surprisingly these were instrumental in driving down the use of cash and driving up the interchange revenues. What has happened, for the good, is that the cash industry has responded with new technology that reduces the cost of handling cash and makes handling cash it much safer. The cost of handling cash is now much closer to that of interchange.

A Finextra member
A Finextra member 14 December, 2022, 09:25Be the first to give this comment the thumbs up 0 likes

Trying to educate children as to the value of money is much harder without...............  Money

A Finextra member
A Finextra member 14 December, 2022, 09:39Be the first to give this comment the thumbs up 0 likes

Cash is on a regular basis taken to court for tax fraud including VAT avoidance, money laundry crime,s theft and robbery sometimes inflicting bodily harm to retailer staff to mention a few serious downsides of it as a payment means on top of its resource wasting and polluting production processes As our market economy works, if there is demand for a more cost effective electronic payment means it will be provided by somebody. Closest to arrive in retail as a debit card competitor at point of interaction is the account to account real time payment. In more advanced electronic payments markets like Norway and Sweden this is already happening, first in e-comm where iA2A real time is more or less established as as the preferred means and coming also in high street stores. It requires demand for convenient, secure,  electronic payment means at competitive pricing for the end users.  In the UK with 60 million people and a multitude of financial providers this should be doable - if there is demand. 

A Finextra member
A Finextra member 14 December, 2022, 12:03Be the first to give this comment the thumbs up 0 likes

The economy requires a certain amount of available cash to function. Cash is the dominant means of payment within the euro area, as the clear majority of our daily payments are made using banknotes or coins. Cash is also essential for the inclusion of socially vulnerable citizens, such as the elderly or lower-income groups.  

https://www.ecb.europa.eu/euro/cash_strategy/cash_role/html/index.en.html

 

A Finextra member
A Finextra member 14 December, 2022, 12:07Be the first to give this comment the thumbs up 0 likes

If i give a taxi driver a $10 or £10 cash payment, he can use it for fuel - he can buy a coffee, he can give it to his children to spend in retail outlets...  that money can be used to pay the staff in the gas station, the barrista's serving coffee, or taken by the owner of the local newsagent.... at the end of these processes the £10 still exists...,.  it has not been subject to repeated slices of commission.... first when i pay by card for my Taxi ride, or when the taxi driver pays for a coffee with Apple pay. or when his child pays for sweets or magazines in the corner shop....   £10 remains £10.

A Finextra member
A Finextra member 14 December, 2022, 12:111 like 1 like

Payment cards and online payments do have a C02 cost as they require vast amounts of computing power to support them. They also require an infrastructure which depends on having the power available. Cash is the only payment method available when the lights go out! 

A large proportion of the world population do not have access to bank accounts and so cash is the only payment method available. If cash were to disappear we would never survive a cataclysmic event such as a major war. How would you buy food if there was no power available?

 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 14 December, 2022, 13:33Be the first to give this comment the thumbs up 0 likes

A vast proportion of the world's population lives in China and India. A vast proportion of people in China and India have bank accounts. A vast proportion of bank account holders in China and India use AliPay, Walmart PhonePe, Google Pay, and dozens of other payment apps to make digital payments absolutely free of cost. Not sure about China, but, in India, thanks to Reg ZeroMDR in force since January 2020, UPI digital payments are free for merchants as well.

I'm not against cash payments. I also get that a nontrivial proportion of the world's population may not have a bank account. But I'm keen to know where is this "large proportion of the world's population" that does not have a bank account?

John Davies
John Davies - Incept5 - London 14 December, 2022, 14:041 like 1 like

What we need is a push on Open Banking. This maximises what the merchants receive and totally cuts out the acquirers, payfacs, issuing banks, interchange etc. The customer pays £100.00 and the merchant receives £100.00 seconds later. The PISP can charge for this but it's in the realm of basis points. We lead the world on Open Banking, let's make it work.

John Davies
John Davies - Incept5 - London 14 December, 2022, 14:332 likes 2 likes

FIFA and Qatar are probably the main reasons we need to keep cash around.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 14 December, 2022, 14:371 like 1 like

"There are 5 million users of EU Open Banking in a population of nearly 450 million people, and 80 million users of US Open Finance in a population of 330 million people." ~ Open Banking: EU v. USA.

Keen to know who the "we" in "we lead the world on Open Banking" is?

A2A payments have been around since well before OB was launched. They failed to go mainstream in UK and other markets with high credit card penetration because they offered nothing for consumers: Why would I forfeit rewards, deferred payment, fraud protection and other benefits that I enjoy with credit card and switch to an A2A MOP that does not give me these benefits?

Open Banking is not going to change the fundamental problem of A2A MOPs, namely, lack of value proposition for payors.

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