Who should pay transaction costs
From about the middle of last December in the Boston stores the payment process was lengthened. No, it's not about those who delve into the purse in search of a wallet. Now at the checkout they ask a mandatory question whether the buyer wants to purchase the package, and if so, whether he is ready to pay 10 cents for it.
The city authorities passed the bill, banning plastic bags and giving the merchants the right to charge for paper. Such measures are in the order of things in many places. But it still creates inconvenience. The point, of course, is not about money, because 10 cents is a mere trifle. However, innovation slows down the already slow payment process. The algorithm included an extra step and the time required for package design. And at that moment, the “one-stop purchase” and the ease of use of EMV chips lose their relevance.
Soon, residents of many US states may face another complication: merchants will begin to charge an additional fee to cover the cost of processing a transaction. But, unlike paper bags, the fee will be mandatory. And will have to give much more than 10 cents.
Ban on ban
This is a transaction fee. It means the additional fee charged by merchants when consumers use card products to pay for their purchases.
In the US, this collection is not a new phenomenon . Under pressure from regulators in 2013, the card networks changed their rules of cooperation and allowed merchants in some cases to shift the transaction processing fee to buyers. Methods of charging the commission were also strictly regulated. In addition, each state independently decided whether the businesses operating in it could take advantage of this opportunity.
Many states gave the green light to the new rules, but most of the merchants did not pass on this type of expenditure to buyers. Moreover, the merchants also stopped pushing customers to pay in cash or with a network card beneficial to the seller. With the strongest competition in the retail environment, merchants first of all seek to complete the sale. And they understand that a wide selection of payment options is an effective way to increase sales figures.
However, soon the topic of commissions received a new life. The New York State Supreme Court ruled that merchants have the right to charge transaction fees to buyers. So the court overturned the prohibitions of card networks that previously existed.
According to the decision of the court, merchants can oblige buyers to pay a commission, as under the law on freedom of speech they announce their rights to consumers. And they will do this when buyers want to pay for purchases with branded cards of payment networks.
The “ban on the ban” provoked a wave of discussions that the merchants would still realize the dream of exemption from paying transaction fees. However, it is hoped that the public will assess in time the consequences of the intervention of regulators in the rules designed to protect consumers from dishonest practices of merchants. After all, consumers may suffer. And regulators in this case will have to cancel their decisions.
There is no need to go far for examples. Suffice it to recall the experience of two markets that are considered the vanguard of payment innovations: Australia and the UK.
Transaction fees have been allowed in Australia since 2003. Taking advantage of this, local merchants inflated prices for goods and services. Some sellers, instead of relying on the collection, included substantial commissions in the purchases of unsuspecting consumers.
In response, the Australian Chamber of Commerce in 2016 was forced to adopt strict rules for large, and in 2017 for small retailers. The rules prohibited redundant commissions and provided instructions for their accurate calculation. But this did not stop the malicious actions of the merchants.
Last summer, the regulator issued a public warning to Cruisin 'Motorhomes, which regularly collected from its customers more than it is necessary by the rules. The company was also fined $ 12,600.
The essence of the message is clear - if the merchants dare to break the law, they will have to pay.
In the UK, the inclusion of a commission in the cost of goods and services has been available without any restrictions since 1991. But merchants rarely used this opportunity. And only in 2011, due to a complaint, the practice of additional fees was carefully studied. Mostly tourist operators abused their rights by charging excessive fees at the end of the booking process. In 2012, regulators tightened the rules for forming commissions, but this measure was not enough.
Then the British regulator was forced to return to the roots, to the level of the rules of card networks prohibiting the collection of a commission from the buyer. The law came into force in January 2018, stopping the activities of merchants who still exploit gray areas in the legislation.
Probably the most discouraging from the point of view of consumers was the practice when additional expenses emerged only at the end of the transaction, after the customer had already compared prices and selected the best merchant. A survey conducted in 2012 by the Chief Economist of the Antimonopoly Service of the United Kingdom made it possible to assess the harm done to consumers by these actions. More than half (44%) of the respondents are sure that they could find a cheaper alternative if they knew in advance about such tricks. Nearly three-quarters (74%) of consumers believe that merchants should have reported the total purchase price in advance, and 39% indicated that the additional commission was higher than they expected.
People were at a loss and felt deceived.
How much does consumer confidence cost
Let's go back to the USA. The potential assignment of commissions by merchants may not just harm consumers. This can slow down or halt the progress of the last decade, which payment innovators and the payment ecosystem have achieved in optimizing payment purchases.
Imagine, consumers will begin to report that for each purchase made with a card, they will additionally be charged with a percentage of the total amount. Buyers will have no other options than to come to terms with the commission or switch to another merchant who does not practice the inclusion of fees in invoices.
Yes, the chance to charge an additional commission does not mean that all merchants will want to use it. Many Boston stores do not take money from visitors for paper bags, as buyers still have to somehow pick up things. Perhaps sellers add 10 cents to the cost of any goods or pay them out of pocket, because the issuance of free packages has always been part of the design of purchases. In general, for many customers, the main thing is that the payment process does not slip on such simple points as buying packages.
Supporters of merchants argue that changes around additional fees will lead to the fact that the interbank commission will come to naught, since shifting the commission to consumers will force banks and payment networks to reduce its size. But this idea causes many doubts.
It is much more likely that consumer dissatisfaction will go to the merchants themselves. People like the convenience and prevalence of payment using cards. They rely on the fact that card networks and issuers impose restrictions, protecting consumers from errors or fraud in merchant systems.
Everything goes to the initial ban on collecting transaction fees from customers. This decision was clearly taken for the sake of consumers. It is designed to protect them from the arbitrariness that has already taken place in Australia and the UK. Card networks, like any platforms, should worry about all stakeholders and prevent malicious behavior of participants.
Regulators should stick to this point of view, not condemn it. Such rules ensure that the consumer retains confidence in the payment ecosystem. Without this, any innovations and associated benefits can simply stop.