UK Merchants Brace for Big Card Fee Increases After Brexit

Card Fees – The Cost of Brexit – 6 Things You Should Know

Brian Weakliam, Founder & CEO, Bankhawk

With the significant migration from cash to card payments, card fees are eating into the margins of UK merchants. Complex pricing structures are now becoming even more complex and CFO’s are finding it harder than ever to forecast P&L costs.

Brexit is looming and I have canvassed opinions from across the cards industry about what will happen to card fees. They are mixed and divided depending sometimes whether you are speaking to a merchant, the card companies or card acquirers.

Whichever Brexit scenario unfolds it will impact hugely on the profitability of international retailers, hotel groups, airlines and many others.

It would appear that the airline sector will be first to drift away from card payments and exploit open banking opportunities to cut out the card companies. A number of airlines such as Lufthansa and KLM are piloting such solutions.

Brexit impact for UK Merchants

Soft Brexit

If Theresa May’s withdrawal agreement is accepted by the EU there will be a transition period with no change before December 2020.

1. Domestic card transactions (UK cards)
Existing EU caps will continue to apply. There will be no change (Domestic caps are written into British Law)

2. Intra – regional card transactions (EU cards excluding UK cards)
EU caps will apply till December 2020. It is not clear what will happen after this date.

3. Inter – Regional card transactions (Outside EU)
New caps proposed by Visa and Mastercard will apply (effective from likely implementation date during H2 2019) until December 2020. It is not clear what will happen after this date.

Hard Brexit

4. Domestic card transactions (UK cards)
Existing EU caps will continue to apply. There will be no change (Domestic caps are written into British Law)

5. Intra – regional card transactions (EU cards excluding UK cards)
International interchange & scheme fees might apply to all Intra-Regional card transactions after Brexit date. UK merchants card fees will be higher, particularly those with international customers.

6. Inter-Regional card transactions
There will be no change (UK may not avail of new Inter-regional IC caps proposed by Visa and Mastercard). UK merchants will not be able to benefit from new caps proposed by Visa and Mastercard.

CFO’s and finance leaders will have to be vigilant to make sure they keep control of costs and protect themselves from unsustainable increases.

So, the question is: Are your card fees Brexit proofed? If not, there will be a big price to pay.