So, the consumer group Which? is to make a “super complaint” to The Office of Fair Trading about retailers (mainly low cost airlines) levying high charges for using a debit or credit card to pay for goods, and for often adding this at the last stage of the purchase process which makes it hard for consumers to compare prices.
The crux of the complaint, if we take Ryanair as an example (because I have a love / hate relationship with RYR), is that they charge a flat £5 per passenger, per flight for paying by any means except a prepaid master card; adding £40 a holiday for a 4 person family and you don’t find out about this until the very last stage in their booking process. Which? suggests that this is high, and the time at which you are aware of it is late.
There Is Cost
Running a small business I am very aware that there is a cost to processing card payments, and this cost has to be borne by the customer somewhere. Most high street retailers bare this cost out of their normal profit margin, but a lot of low cost retailers itemise separately, arguing they are just passing on a cost extra to the product itself.
Which would be fine, if they weren’t then hiding profit margins on top of it.
We currently process credit cards through HSBC Merchant Services, who charge us £0.38 for a debit card transaction, or 2.8% for credit cards. Taking an example from Ryanair again, I just checked their website: a return flight for 4 from Birmingham to Alicante is £439, plus £40 “admin fees.”
If I paid by debit card this would add £39.62 to their profit, or £27.08 if I paid by Credit Card (£12.92 being 2.8%). It doesn’t seem fair on the face of it, and it looks devious that they hide it until the last step. Ryanair incidentally are not alone in this practice and they also argue the charge is to cover the entire cost of the transaction including their website etc (clutching at straws!).
The Banks Role.
What interests me more is that no-one is questioning the role of the banks in all of this, specifically where a credit card is involved. Why do the bank need 2.8% from the retailer? Why not a flat fee like Debit Cards?
The banks will claim that they are using this to offset the risk that the retailer fails to provide the goods or services and a reclaim is made by the card holder; but this really must be such a minute fraction it can’t possibly account for the whole 2.8%.
This is at at time when the average interest rate on a credit card has risen to 18.8%, yet the bank base rate is 0.5%. The banks, through their mouthpiece – The British Bankers Association – have put forward even more tenuous excuses than Ryanair can manage. The BBC cover it well here.
I would suggest that they are trying to “cream” both ends of the transaction, by making money from the merchant at the point of purchase and then from the card holder at the point of payment.
Real World Example.
My brother, who runs a small independent motorcycle workshop passes on the 2.8% credit card charge to customers, but absorbs the debit card fee. It’s amazing how many people will instantly swap to a debit card when faced with a credit card surcharge.
He’s not making any money by passing this charge on, and the instant swap by the vast majority of customers says to me that he is being charged for allowing the banks to make money by financing the customers payment. Afterall, they have the money in a debit account; but they’d rather pay by credit.
Seems to me that when Which? refer their super complaint to the OFT they should be asking the OFT to look not only at the price and transparency of these charges, but whether the base charge by the banks is fair too.