New payment surcharge regulations came in to effect in the United Kingdom on 13th January 2018. The new rules make it an offence for internet merchants, amongst traders in general, to add an extra charge for processing an online card payment.
These rules apply to all merchants, but this article focuses on the effect for online businesses.
The purpose of this article is to help online merchants, who are selling to consumers in the UK, to understand the new regulations. It is also intended to provide help towards meeting the new requirements and the steps you need to take to make sure your business conforms.
Summary of regulations
Merchants are now banned from making an extra charge, over and above their regular price, because their customer has chosen to pay using a particular method of payment, such as a credit or debit card. The same applies to electronic money (e-money).
These regulations apply to all online merchants for whichever way the payment is collected. It does not matter how the customer pays, such as by using a payment link, or by sending an invoice by email, or by a payment being taken over the phone, the new regulations apply in all cases.
They also apply if you sell goods and services both online and offline. So, if you also have a physical real-world shop or take payments in a taxi or at a show, exhibition or even in the home of your customer, you cannot make an extra charge because of the way the payment is made.
In any case, if a store owner applies extra charges because of the way the customers pay, then the customers will have the right to a refund. The law also permits them to take the seller to the court to get their money back.
So, it is always safe to avoid infringing the law. Moreover, it is relatively easy to avoid breaking the law while also avoiding the loss of a valuable income stream.
Abide by the rules, and don’t end up being out of pocket
The new rules simply mean that you cannot charge extra because your customer chooses to pay in a particular way. In fact, the spirit of the law is that all customers should pay the same when they are buying the same goods and services.
For example, the person who sends you a cheque should not be charged any more or any less than someone who chooses to pay you by credit or debit card.
The authorities in the UK recognise that accepting payments is a cost of doing business. There is a cost to accepting a cheque, keeping it safe, taking it to the bank, and waiting for it to clear. Moreover, there is a cost if the cheque bounces, or if it is for the wrong amount.
There are similar costs to take online payments. Your transaction processor will charge you an amount for providing you with their service and for processing each payment.
In both the cases above, you cannot charge extra because of the way the payment was made. But you can add extra to your charges to cover these costs.
How much can you charge for accepting payments?
The regulations make it clear that what you can add to your charges for processing payments must be fair and reasonable. The payment method should not be the reason for any extra charge. Otherwise, they may just stop being your customers!
If you take payments in different forms, such as by credit card, by cheque, even by cash, you are expected to work out a mean cost across them all. This is so that the charge you apply for accepting different methods of payment is always the same.
If you are ever challenged about your cost for accepting payments, you will need to be clear about how you worked this out.
How can you apply this cost?
If you want to recover the cost of taking payments, the UK authorities have effectively given you two options.
- You could choose to pass on the cost by adding it to your regular prices. This has the advantage of making your pricing more transparent. You have one price and no extras. However, the main disadvantage is that you have just increased the price of your product. Before doing so, you may wish to see what your competitors are doing and make sure you do not put yourself at a disadvantage.
- The second option is to create a new charge, such as a service charge, and apply it to all methods of payment. This means your headline pricing remains the same, but it may lead to unhappy customers if and when they find out.
The choice is yours.
In overall terms, your prices may not have changed and you should reassure your customers, particularly your regular ones, that in reality nothing has changed.
Some smart businesses may use this as an opportunity to communicate with their customers. This is your opportunity to explain what you are doing and explain why. You could consider offering them an incentive on the basis of the inconvenience caused, and at the same time encouraging them to order in larger volume.
Remember that every change imposed on your business can also be an opportunity to generate more business.
About the author
Peter Lyster is the Marketing Manager of UK payments service Nochex. He has worked in financial services and technology with businesses of all sizes for many years.
Nochex provides payment solutions for small and medium sized enterprises throughout Europe. It is a long standing supporter of J2Store, Nochex payment has its own J2Store plugin, and many of its merchants are avid users of J2Store’s services.