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Everything you need to know about the surcharge ban

The government have abolished retailers from adding surcharges to card payments used both online and in store, in a bid to prevent customers from being penalised for their chosen payment method. The move was passed on January 13th, impacting millions of SME’s across the UK who used surcharges to cover the costs of payment processing charged by banks and credit card companies. Here is what SME’s need to know:

  • The ban is enforced by Trading Standards who have the power to take civil enforcement action against companies who breach the regulations.
  • The payment methods covered in the ban include credit cards, debit cards, direct debits, online / telephone bank transfers and linked ways of paying such as Paypal and Apple Pay.
  • Cash and cheque are the only common payment methods that are unaffected.
  • The rules will apply for all UK companies selling to UK customers, and will also be effective in the EU.
  • This ban does not affect booking fees or admin fees for the following; theatre, cinema and concerts.

Hidden Fees

The ban partly came about as a response to consumers’ frustrations when being hit by nasty surprise fees at the checkout. Going forward, the ban is intended to improve transparency; allowing consumers to make more informed decisions about how they want to spend their money.

While this may feel like a step in the right direction for cardholders, there may be detrimental effects for small businesses who need to cover the extra card payment charges. Many companies have already tried to dodge the rules by re-branding the charges and introducing new ‘admin fees’ or ‘service fees’, which are now applied to all payment methods at the checkout, including cash.

I do not recommended this. You will only frustrate your customers further, potentially causing them to abandon their checkout – never to return to your site. Instead, all costs should be clearly and honestly detailed upfront. Afterall, transparency helps to maintain trust levels. With this in mind, there are two main options for your business.

1. Absorb the Costs into your Pricing

Understandably, many small businesses must keep their prices low to stay competitive in the market. If your business has high enough profit margins, the best thing to do is absorb the cost of the transaction fee, allowing your prices to remain the same. Another thing to consider is your average transaction value (ATV), and whether more of your customers pay by debit or credit card. Businesses with a low ATV are potentially more likely to absorb the costs than those with a high ATV.

2. Make small Increases to your Prices

If you don’t have the room in your profit margins to eat up the price of the transaction fees, then you may have to consider upping your prices a little. Take a look at your annual costs and increase your individual product prices by a very small amount in order to account for the money you would be losing out on. Doing this gradually over a the space of a few months may be more effective, and will prevent you from overwhelming your customers by raising your prices too steeply.

Be aware that customers will notice when you increase your prices. However, as discussed earlier transparency is key. If your customers understand the the increased costs you face, they will more than likely accept the price increase.

Conclusion


One thing that we know for certain is that card payment usage will only increase, as many customers favour paying on plastic rather than carrying cash. For ecommerce businesses, payments made using debit or credit cards, along with Paypal account for over 96% of all online payments – so it is definitely worth revising your costing to ensure you are making the profits that you deserve.

 

 

 

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