Bacs, credit card fees, credit cards, debit cards, Direct Debit, Direct Debit Guarantee, Paperless Direct Debit, Payment Services Directive
24, JAN 2018

From 13th January 2018, businesses and service providers cannot pass credit card fees (or debit card charges) on to their customers. If you’re worried about how this will impact on your business, why not consider the opportunities that direct debit offers?

It’s long been the norm for businesses to pass on debit and credit card fees to their customers. The practice came under much criticism. Many organisations added the charge at the end of the online booking process, making it less transparent and harder for customers to make accurate comparisons between retailers and service providers when looking for the best deal.

Since 2013, organisations have only been able to charge the costs of processing the payment – which was estimated as 20p for debit card transactions and 2% of the value for most credit card transactions. The Consumer Rights (Payment Surcharges) Regulations 2012, which introduced this limitation in 2013, has now been amended by the Payment Services Regulations 2017 (implementing the second EU Payment Services Directive). The result is that, as we mentioned, since 13th January 2018, it is now illegal to pass on surcharges based on the type of payment method to customers.

How will businesses absorb the costs of credit and debit card charges?

It’s been suggested that many, particularly smaller, businesses will find it hard to absorb the costs of processing credit and debit card transactions now that they cannot pass them on to consumers. Some organisations have already said that they will no longer accept payments by credit or debit card. Most notably, HMRC have already said that they will no longer accept payments by credit card for self-assessment tax returns from 13th January as they feel it would be unfair to pass the costs of processing these payments onto other service users.

Other businesses have added – or may consider adding – a blanket service charge. This is permitted because it applies to all customers regardless of how they pay. The Just Eat takeaway service has already done this, replacing a 50p charge for debit or credit card users with a 50p service charge for all customers. Some organisations, such as Flybe and Premier Inn, have said they won’t apply a general charge to cover credit card fees, but it will remain to be seen what actually happens as the impact of this move begins to bite.

It’s important to remember that although the ban on passing on surcharges comes from a European Directive, it is now also part of UK law, so will still be in place after Brexit.

Direct debit offers a great alternative

If charging all your customers extra to cover credit card fees or debit card payments is an outcome you’d like to avoid but you’re struggling to see how you will be able to absorb the costs within your business, direct debit may be the answer. In addition to the many benefits that direct debit offers to both business and consumer, the costs are much lower than those applying to credit and debit card transactions.

Most people tend to think of credit and debit cards as better for a single transaction and assume direct debit is just for regular payments. This is no longer really the case. Since the direct debit scheme has become more automated and efficient, organisations are normally now allowed to take a direct debit for a single transaction. This is even further enhanced by paperless direct debit. The organisation only needs capture the sort code, account number and account name – so setting up a single transaction direct debit is no harder than taking card numbers, expiry dates and security codes.

And because the system is backed by the Direct Debit Guarantee, it offers real peace of mind to your customers, guarding against fraud. It is considerably safer than paying by credit and debit card.

If you would like to explore the possibilities that direct debit offers your business, as an alternative to costly credit card transactions, we at Clear Direct Debit would be happy to help. Not only can we talk you through the process, but as a BACS approved direct debit bureau we can help you get started without many of the set up costs – we have all the software ready to go! Get in touch to find out more