Card payments

Representing 240,000 businesses, the Axe the Card Tax Campaign, launched a pamphlet urging the Government and the regulators to level the payments playing field and encourage innovation for fintechs in the UK on Friday 9 December.

The Axe the Card Tax campaign aims to help rebalance the payments market. The market currently makes it difficult for emerging fintech companies to compete due to the high costs of card payments. Open banking has encouraged innovation in the space, although the campaign leaders highlight the lack of attention to the fee structures of card payments which could seriously hinder growth.

Trade bodies running the campaign include Coalition for a Digital Economy (Coadec), Federation of Small Businesses, British Retail Consortium (BRC), Association of Convenience Stores, the Federation of Independent Retailers and the Charity Retail Association.

The average cost of card payments to the retailer is as high as 0.7 per cent on every card payment. The campaign explains that this could mean British businesses pay a £5billion annual card tax.

Visa and Mastercard own the vast majority of the card payments market. As card payments have become ever-increasingly more popular, major card companies have gained control of the payments market. Smaller businesses are given little to no choice but to accept the fees set out by those companies.

These fees have been steadily increasing. It is estimated that scheme and processing fees charged by card giants have increased by up to 600 per cent since 2014.

A call for reform

Setting out a plan to increase the potential for payments, the campaign calls for:

  • The Payment Systems Regulator (PSR) to freeze all transaction fees until PSR investigations of the payment sector are complete.
  • The PSR to reverse the 400 per cent rise in cross-border interchange fees post-Brexit that was introduced earlier in 2022 by major card schemes.
  • The Treasury to initiate its own review of the cost of accepting card payments in the UK.
  • Regulation of alternative providers and setting up open banking so that retailers wanting to offer alternatives to card payments have certainty and transparency.
Charlie Mercer, head of economic policy at Coadec

Charlie Mercer, head of economic policy at Coadec, commented: “With the rise of digital tech over the last decade, you’d expect to see a variety of ways to pay to emerge. However, in reality, only card payments have benefited.”

“Cards have their place, but they’re not the only way to pay. High card payment fees incentivise banks to maintain the status quo. The adoption of payment innovations like open banking always faces an uphill challenge whilst this remains the case.”

‘Regulation has failed’

Charlie Mercer also spoke on the need for reform. He said: “Regulation has failed to level the playing field in the payments sector, cutting small businesses off at the knees. While prices rise across the board, the government has slept on the cost of taking card payments leading to crippling fee rises. The UK’s thriving fintech sector can challenge the closed shop of the payments market. But it cannot without help.”

“By axing the card tax, we can save British businesses money, help battle the cost of doing business crisis and unleash payments innovation in the UK.”

Hannah Regan, Financial Policy at the British Retail Consortium
Hannah Regan, financial policy at the British Retail Consortium

Hannah Regan, policy advisor of finance at the BRC, also explained the need for change.

Regan explained: “Our recent data shows that card transactions now account for almost 90 per cent of all retail spending. With fees continuing to rise year on year, retailers are really seeing the impacts of these continual rises.

“Consumer behaviour in the UK is so heavily reliant on the use of cards, but the development of alternative payment methods would bring increased innovation and inject greater competition into the market, with benefits for customers and merchants alike.”

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