A main driving force of the ongoing regulatorypressure on interchange fees worldwide has been the merchants, whohave been complaining about banks charging fees far exceeding theactual costs of card processing. Now the merchants might findthemselves in the same situation with banks – Which?, a consumeradvocate group in the UK, has recently launched an officialcomplaint with the Office of Fair Trading (OFT) that merchantsurcharges on card payments exceed their actual costs to processthe transactions. The OFT has 90 days to respond to thecomplaint.
According to Which?, local authorities, estate agents, cinemas, andeven the DVLA (Driver and Vehicle Licensing Agency) are beginningto put these surcharges in place. Budget airlines are being singledout as among the worst offenders, charging a family of four bookinga return flight by credit card £40 for a transaction costing just20p. That would represent a whopping 20,000% cost mark from theairlines.
Traditionally major card networks (such as Visa and MasterCard)have rules against merchants charging additional fees for paymentsmade with cards, but the rules have been under attack by regulatorsaround the world. Visa International’s latest Operating Regulations notes, “Visa merchants agree to acceptVisa cards for payment of goods or services without charging anyamount over the advertised price as a condition of Visa cardacceptance, unless local law requires that merchants be permittedto engage in such practice.” The UK is one of the countries wherethe local laws allow the practice of surcharges.
Merchants’ position against fees paid for card transactions is easyto understand. And, pressure is mounting around the world to reduceinterchange fees which account for a large portion of the merchantfees. However with the same reasoning, it is hard to justify thepractice of turning card surcharges into a highly profitablebusiness.
Similar things happen in other parts of the world as well. Lastyear in Australia, another country that allows surcharges, thegovernment of New South Wales called on retailers to disclose howthey determine their card surcharges. A study commissioned by thegovernment found that merchant surcharges had risen sharply overthe past few years, after the Reserve Bank of Australia allowedsuch fees to be introduced in 2003 in an attempt to allow merchantsto recover their card processing costs. Read more here.
In May 2010, Germany’s highest court banned budget airline Ryanairfrom surcharging German customers on card payments, saying that theairline should not force customers to bear the costs of fulfillingits own legal obligations while not offering no-fee paymentoptions.