Does Brexit bring any changes to card payments?

Since the Brexit decision was taken, most business leaders simply want clarity so key decisions are not delayed due purely to uncertainty. Because the dramatic change in card interchange costs in 2015 was an EU-led initiative and impacts directly on margins, clients have been asking us if we see the benefits being unwound in the UK – and if so, on what timescale?

The simple answer is “no!” – we do not see any meaningful changes leading up to actual Brexit, nor for the medium-term of, say, five years after that – related to the UK leaving the EU.

But there are already such enormous changes taking place, and inevitably that means the cost of taking card payments should be actively considered by all organisations.

So, why do we think that Brexit will bring no change in the foreseeable future?

Primarily because the UK Government was not only an active supporter of all aspects of the changes, but also because the spin they put on it was one of maximising the reduction in retailers’ costs. It is difficult to see them back-tracking on that as, crudely, the beneficiaries would be seen as the politically unpopular banks, and the cost would potentially fall onto consumers through the risk of increased retail prices.

Secondly – whatever one’s politics – it is unlikely an alternative government would favour banks over consumers in the post-Brexit five-year horizon that we are considering.

So, we are drawn to the conclusion that the primary aim of the interchange changes – that of potentially driving £750m of costs per annum out of retail prices – is going to remain.

What does ERA’s Payments Team think needs to be looked out for?

Credit Card costs should fall from levels seen prior to December 2015. The clearest impact of the changes has been a fall in interchange from the widely-accepted average of 0.85% of transaction size to 0.3%. Of course the acquirers have other costs to consider, but any business that has not seen the relevant tariffs fall by at least 0.5% of transaction values, needs to consider why that is the case.

Debit cards are a little trickier than credit cards. Here interchange costs averaged around 8.5p per transaction for Visa Debit cards, which account for about 80% of such transactions in the UK. The changes led to a cost of 0.2% of value plus 1p, with an overall cap of 50p for secure transactions effective March 2015. That means that any business where transactions are less than £35 on average should have seen the cost of such activity fall.

Debit cards have been complicated further as – effective 1st September this year – the cap is being removed. This implies that high-ticket retailers need to be really sure of their ground before proactively challenging tariffs. Equally, thought needs to go into accepting or challenging any proposed changes notified by acquirers.

ERA expects the card schemes to develop and introduce other charges to replace the income lost through the interchange regime changes. Or existing “other” charges to be increased or more widely applied.

The interchange environment is in a state of considerable flux just now, and the situation is not helped by the fact that not only was (is?) the IT of many of the acquirers not fully up to the task now needed, but in some instances a strategic way forward is not clear.

Whilst maintaining a constant awareness of both the market and the costs faced by that market, our actions are solely with our clients’ interests in mind. We believe that any work starts with gaining a full understanding of current and planned activity, and only then seeking to negotiate changes.

Feel free to contact us for more information.