A fascinating and somewhat disturbing report from Cards International confirms what most retail merchants have been saying for years – banks are ripping them off with charges!
What’s even more concerning is that retailers feel that they are suffering ‘unjustifiably’ high fees on credit and debit card sales and that these will become the norm for emerging contactless and mobile phone payment methods, according to the British Retail Consortium (BRC).
As if we haven’t had enough issues already raised by lack of Near Field Communication (NFC) enabled devices, revenue sharing arguments, crossing of traditional boundaries and who should actually be the driver of contactless transactions, we now have concerns of overcharging by banks at the merchant level. What chance do we ever have of getting NFC broadly accepted?
BRC director general Stephen Robertson has argued that as payment technology develops card charges should be going down, not up and he would have many supporters.
“There is no justification for such big differences in charges between cards and cash,” said Robertson. ‘Contactless’ systems can bring benefits but banks are currently levying charges on card payments well beyond what it actually costs to process these transactions. They can’t expect to maintain these excessive charges as numbers of non-cash payments grow.”
A survey from the BRC shows accepting payment by debit card costs a retailer four times more than when a customer uses cash. In addition, bank’s charges for handling debit card payments have almost doubled in five years.
An average cash transaction in the UK costs retailers 2.1 pence, a debit card payment costs 8.5 pence, and a credit card payment costs 34 pence. The BRC claim that if charges for every payment method were as low as they are for cash, its members could pass on £480 million in cost savings to their customers.
Cash, however, is the preferred method of spending according to the survey, amounting for 58 percent of all transactions. This is up on 56 percent in 2008 but down on 61 percent in 2007.
“Cash is still the most popular way of paying and the cheapest for retailers. 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,” added Robertson.
No matter how many NFC and ePayments conferences I attend I still find that the finance and communications industries still cannot come to grips with how it should all work. Credit and debit card transactions have always been the domain of the finance industry, NFC sits firmly in the domain of the transport industry (in terms of take up) and mobile devices the domain of mobile operators. Putting them together to achieve NFC via mobile phones means that all the players have to work in harmony and work out how to share revenues. Mission impossible? Almost.
It all works fine in Japan and Korea, probably because mobile phones are more prevalent than credit and debit cards and it makes sense to use the phone as a payment device. The transport industries also backed the technology.
Talking to credit and debit card providers indicates that there a few cost savings going NFC as they will still have to supply plastic cards to customers in case they forget their mobile NFC devices. Mobile operators want someone to pay ‘rent’ for the use of their secure SIM devices. Banks want secure transactions to reduce fraud. If banks are charging over the odds for these transactions it hardly leaves any space for other players and demotivates merchants who are the real adopters of the technology.
What is most likely to happen is that each of the traditional players will try and play all the roles, on their own. Card issuers will provide their customers with non-SIM devices such as stick-on NFC labels, or wafer-thin SIMs that reside with existing SIMs. CSPs will try to act like banks and offer ePayment and mobile banking options. and merchants, especially transport companies, will simply go for the lowest cost option.