By THIS IS MONEY REPORTER and VICKI OWEN
PUBLISHED: 09:25, 15 July 2013 | UPDATED: 09:51, 15 July 2013
Being charged to use your debit or credit card simply to pay for something can be an infuriating experience, however, when people complain shops and businesses typically blame the cost of processing card payments for this.
There are costs to handling cards, but are they as high as retailers make out?
We take a look at how the payments system works.
Who pays for payments?
Our electronic payment systems do not come for free. You may not think much about it next time you punch in your Pin but somewhere down the line someone has to pick up the tab for processing of those payments
The cost of card payments is currently levied by MasterCard and its rival Visa on shopkeepers who take them.
Marion King, Mastercard’s UK president, explains: ‘When you use your card there is a cost. If you use a debit card in this country you won’t pay for it. If you use a credit card and pay off your outstanding balance every month you don’t pay for it. But there are costs to handling these cards and there has to be a funding mechanism.’
She states the ‘interchange fee’ levied on retailers by MasterCard does not end up with MasterCard. ‘It’s the fee that goes from the merchant [the shop] to the issuing bank or financial institution.’
What do these fees cover?
MasterCard and Visa set the fees that are levied on retailers when they take a payment from a card.
Interchange fees cover the costs to the customer’s bank of providing the card. These include interest-free borrowing, administration and covering the risk of fraud. There may also be extras such as running a loyalty points scheme.
Are fees rising?
CMS Payments Intelligence, which campaigns against the fees on behalf of store groups, estimates that the annual interchange fee bill for retailers has risen by £170 million since 2009.
The rise is a result of banks issuing more cards with extra services attached to them that demand higher fees.
Alistair Combes of CMS said: ‘There has been a large increase in the number of premium and rewards cards, so where previously retailers might have been charged an interchange fee at 0.8 per cent of the transaction value, for some cards that almost doubles.
‘Some retailers’ margins are just 2, 3 or 4 per cent of the transaction, so it is a huge cost.’
How much in fees is a shop paying?
What the CMS says a retailer typically pays on a £100 sale:
- Cash: Zero. The shop gets £100
- Debit card: 8p per transaction. The shop gets £99.92
- Credit card: 0.8 per cent. The shop gets £99.20
- Premium/rewards card: up to 1.6 per cent. The shop gets £98.40