How will a cap on card processing fees affect small businesses?
The European Union is clamping down on payment card companies charging fees to retailers to cover processing card costs. Whilst at present, businesses need to pay large amounts to card companies in order to accept the pieces of plastic as payment, this aims to be capped at 0.3%, down from the current amounts of 0.9%.
This sounds like good news for small businesses everywhere but how could it affect you and what do you need to think about?
Boon to the business
Not paying such large fees out to a payment card company is undoubtedly going to affect your bottom line for the better and will make taking payment by card a much more attractive proposition.
It may be naive, but there are rumblings that the EU hopes that cutting the payments you need to make to the card companies will result in cheaper prices for your customers, so there might be some sort of expectations to lower prices accordingly in line with the cap. Whilst no official edict on this has been made yet, it might be that your competitors initiate a race to the bottom over prices that you can’t afford to not participate in.
The cost incurred by the card companies does not unfortunately disappear and with such a significant cap on how much they can charge retailers, they will be trying to reclaim that through other means. Some of the major players have fought hard to resist this legislation as they claim it significantly damages their business model, so they will have to adapt and find other ways of getting their money back.
The most likely scenario will be that consumers will have to start paying an annual fee for their bank account or to be able to use their credit card, effectively heralding the end of free banking. Although the knock on affect to small businesses might be small, it might muddy the waters with regards to card payments and leave room in the market for other payments to emerge, for example a mobile payments app that cuts out the debit or credit card company entirely. If this happens, you have to be sure that you are capable of responding to the change or else you risk missing out on potential trade.
The FSB’s opinion
The FSB itself has already issued a statement on what it feels will be the effect on small businesses and it is positive and optimistic about the changes but was also concerned about what card companies would do to mitigate their losses.
“The intention of the proposed changes to card fees is to reduce costs for retailers and prompt savings for consumers. Small retailers will be able to offer more competitive prices and people on the high street should benefit from this,” said FSB national chairman John Allan. “However we don’t want to see a situation where card companies push additional costs on small businesses and consumers to make up for any loss in earnings prompted by the changes to regulation.”
There will be good things and bad things about this legislation, but at least in the short term, a cap on how much you pay for card payments will be welcome news to any small business owner.
How do you feel about the proposed legislation? If you think this will affect you for better or worse, drop a comment below.