Debit card transactions cost four times more to process than cash payments, says the UK’s leading retail trade association, raising concerns that the move from cash to contactless debit cards and NFC phones will increase retailers’ overheads.
Cash transactions costs UK retailers an average of 2.1p to process while a debit card payment costs 8.5p and a credit card transaction costs an average 34p, says the British Retail Consortium (BRC).
“Retailers are seriously concerned that banks plan to make the higher debit card charging regime the norm for the emerging contactless and mobile phone payment methods,” says the BRC, and “if that happens, retailers would face huge increases in their costs as these new ways of paying replace cash – particularly for low value purchases.”
“As part of its promised clampdown on irresponsible banking behaviour, the new Government should intervene to cut the excessive charges banks levy on retailers for accepting plastic,” said the trade association.
“The combination of unjustifiably high card charges and growth of non-cash payment methods promises big windfalls for banks and a financial blow for shops and customers,” it concludes. “If charges for every payment method were as low as they are for cash, over £480 million in cost savings would be passed on to customers through lower shop prices.”
The BRC’s figures are based on an analysis of more than seven billion transactions made in 21,500 shops of all types across the UK. The analysis found that banks’ charges for handling debit card payments are now higher than they were a year ago and that they have almost doubled in five years.
“There is no justification for such big differences in charges between cards and cash,” says Stephen Robertson, director general of the BRC. “With payment technology and efficiency developing, card charges should be going down not up. ‘Contactless’ systems can bring benefits but banks are currently levying charges on card payments well beyond what it actually costs them to process those transactions. They can’t expect to maintain those excessive charges as numbers of non-cash payments grow.”
“In the end it’s customers who meet these unfair costs in the prices they pay,” he added. “Banks must reduce their charges to reflect more honestly the costs they actually incur in processing transactions.”
The BRC found that, in 2009, cash accounted for 58% of transactions by volume and 32% of transactions by value.
“Cash is still the most popular way of paying and the cheapest for retailers,” Robertson adds. “Cash use had a boost in the recession. Many people find managing their spending easier with cash – you can’t spend what you haven’t got . But the longer term trend suggests cash use will slip gradually.”