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July 29, 2011

Back into battle

The British Retail Consortium has released its annual Cost of Collection survey, and is bringing the fight to the payments industry. In the card vs cash war, Louise Naughton reports on the latest battle between merchants and payment processors.

By Verdict Staff

The British Retail Consortium has released its annual Cost of Collection survey, and is bringing the fight to the payments industry. In the card vs cash war, Louise Naughton reports on the latest battle between merchants and payment processors.


Pie chart showing UK retail transaction volumes in 2010Retailers are again blasting banks for levying “unjustifiably-high and illogical charges” for card processing.

According to the British Retail Consortium’s (BRC) annual Cost of Collection Survey, total UK retail spending in 2010 stood at £292bn ($471bn) with the cost of payment collection across all payment methods amounting to over £659m.

Such fees are “out of line” with the costs retailers incur for payment transactions, argues the BRC. While cash accounts for the majority of transactions (55.2%), only 11.5% of the total payment collection cost is attributed to it. This is compared to the cost of accepting debit and credit cards, which account for a lower proportion of payments, 34% and 9.95 respectively, but cost retailers some 37.5% and 44.5% of their total payment collection cost.

But the payments industry is not taking these figures lying down. The report’s methodology is called into question by the UK Cards Association, which says all is not as it seems.

“It is very difficult to tell from the report what the cost of cash is to the retailers themselves as opposed to the money they pay,” says spokesperson Sandra Quinn.

“The BRC does not seem to be particularly forensic around the specifics of how much cash costs retailers.”

Richard Braham, policy advisor at the BRC stands by the survey, calling Quinn’s criticisms “strange and unhelpful”.

“Our survey comes straight from the tills of retailers so it is very robust and comprehensive,” he says. “To criticise without being specific is not particularly helpful.

“Neither Visa nor MasterCard have told us they think the methodology is wrong this year, as they have done every other year.”


MSC transparency

Pie chart showing UK retail payment collection methods in 2010The bulk of a retailers’ payment collection cost (86.21%) is attributed to the merchant service charge (MSC), which includes the processing fee, interchange and the card scheme fee for that individual transaction.

Braham says there is no transparency or accountability in the MSC and the BRC continues to push for the card associations to share the full composition of those fees.

While Quinn acknowledges there isn’t any industry-wide work currently being done to increase MSC transparency, she told CI she would be “very surprised” if the contracts that exist between merchants and their cards businesses are not specific about what services are covered within the fees.

Overall debit transactions are up 15.8% from 2009 and cash came down 5.2%. But despite this decrease in usage, the BRC notes the cash average transaction value rose from £11.43 to £12.93 – a trend retailers believe is indicative of an economy still feeling the effects of a recession.

Not content with being the payment method of choice, cash is also seen to be a significantly quicker than cards, with the BRC finding the average time taken to process a cash transaction at the point-of-sale is 27.2 seconds compared to 39.4 seconds for a card payment.

The cheque continued its free-fall into payments oblivion, accounting for a meagre 0.1% of total transactions in 2010, down a staggering 55% from 2009. This may not reflect a consumer’s natural spending behaviour or payment preference, however, as the retailers themselves stand accused of forcing the decline of cheques thanks to their ongoing refusal to accept them.

“In the face of big pressures on household budgets, people are managing their money carefully while retailers are minimising the costs they can influence by investing in anti-fraud technology,” says the BRC’s director general Stephen Robertson.

“But unjustifiably-high payment charges are still being taken from retailers. The question is should this money be going into increasing banks’ profits or to keeping shop prices down for customers? Reducing the charges bank impose so they genuinely reflect the actual costs involved in processing these transactions is the right answer.”

On a happier note, the payments industry and retailers have shown they can successfully work together as fraud losses fell by 37% during 2010 thanks to technological innovations such as the latest secure card readers and new levels of internet security.

While it is unlikely both parties will ever agree on the subject of payment costs, increased MSC transparency will allow for a greater understanding of what services merchants are paying for. Failure to do so only serves to instil the notion there is something to hide.

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