EU cap on credit and debit card fees will leave retailers in the black

EU cap on credit and debit card fees

New payments legislation announced by the EU today, will slash credit and debit card charges for retailers, resulting in a boom for the sector, according to KPMG.

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LONDON, 10th March 2015 - New payments legislation announced by the EU today, will slash credit and debit card charges for retailers, resulting in a boom for the sector, according to KPMG.LONDON, 10th March 2015 - New payments legislation announced by the EU today, will slash credit and debit card charges for retailers, resulting in a boom for the sector, according to KPMG.

The new rules caps interchange fees for debit and credit card payments at 0.2% and 0.3% respectively.  These balancing fees are payable between retailers’ and cardholders’ financial institutions when shoppers pay using cards.

Currently the fees retailers pay to an acquirer for processing services to accept customer transactions can vary significantly, dependent on the card presented by the customer.  This means if a shopper buys a £1,000 laptop using a credit card, the retailer currently could pay more than £20.00 as an interchange fee (part of the processing fee) on that transaction.  Under the new regulation they would potentially pay just £3, a saving of £17.00.

The new regulation could benefit consumers too. Retailers factor the cost of interchange payments into the price of goods, which means all consumers subsidise these costs, regardless of the payment method used.

“The amount retailers pay out in merchant fees, where interchange fees are a key component of this cost, has risen exponentially over the last decade as shoppers have shifted from cash to card,” said David McCorquodale, head of retail at KPMG.

“Capping interchange fees will help to alleviate a significant financial burden, which has been weighing heavily on retailers’ shoulders.

“It remains to be seen whether or not merchants choose to pass these savings on to consumers or take this opportunity to reinvest the cash back into the business. My view is retailers will initially wait to see if they are hit with increased bank charges first before passing any savings on to the consumer.  If bank charges do not increase, the saving will filter through to reduced prices on goods.”

Liz Oakes, associate director at KPMG, said: “While undoubtedly this appears to be good news for retailers, the question remains as to who picks up the bill for the technology revolution the payments industry is going through.  Retailers are faced with a range of new payment providers, products and services (including e-Wallets and mobile solutions) and struggle sometimes to see a clear investment path for point of sale acceptance that will meet the needs of all customers.”

“Interchange charges are only part of the merchant acquiring fees.  Interchange fees are also typically a method that can be used to fund programmes to upgrade payments and point of sale infrastructure: this cap could leave a potential funding gap for the development of future payment systems, like the cost of adapting cards so they can be used with the latest technology, such as contactless or mobile. This is a debate all stakeholders need to engage in.”

-ENDS-

 

For further information please contact:

Zoe Sheppard, PR Manager, KPMG

T: +44 (0)117 905 4337

M: 07770 737 994

E: zoe.sheppard@kpmg.co.uk

Simon Chan, PR Assistant Manager, KPMG

T: +44 (0) 207 694 2024

M: +44 (0) 7747 564 737

E: simon.chan2@kpmg.co.uk

KPMG Press office: +44 (0) 207 694 8773

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About KPMG

KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 11,500 partners and staff.  The UK firm recorded a turnover of £1.8 billion in the year ended September 2013. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 155,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  Each KPMG firm is a legally distinct and separate entity and describes itself as such.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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