The Sunday Times - UK (2021-11-28)

14 The Sunday Times November 28, 2021

MONEY

O

ver the years American

Express customers have

learnt the habit. You walk to

the till, sheepishly pull out

your card, waggle it in the

general direction of the

cashier and then whisper:

“Do you take Amex?” When

the answer is no you put it

away and pull out a Visa or

Mastercard.

Amex holders are used to this — but

could it soon become something we all

have to deal with? Amazon will stop

accepting Visa credit cards from January

in the latest salvo in what has become a

battle over fees, pitting one of the world’s

largest companies against another.

Neither is in the habit of losing.

Amazon said Visa has hiked the fees it

expects retailers to pay on each transac-

tion, throwing a light on the murky world

of retail charges that we as customers

know nothing about.

Card companies are also under fire

from a host of new competition, includ-

ing buy now, pay later firms such as

Klarna and direct payment methods,

which cut out the need for their services.

While most credit cards in the UK are

free for customers to use, so long as you

pay off your balance every month, your

transactions incur a percentage fee

charge that is covered by the retailer. It is

usually made up of three slices: the inter-

change fee that goes to the paying card’s

bank; the acquirer fee that goes to the

merchant’s bank, which accepts and

processes the payment from the

shopper; and the scheme fee, which goes

direct to card companies.

The fees are tiny fractions of the trans-

action cost, but just like the small charges

you pay on investing, they add up to

billions because of the sheer number of

card payments made every year. All costs

are passed on to prices for consumers.

The reason so many retailers don’t

take American Express is because its fees

are so much higher than Visa and

Mastercard.

Callum Godwin from the payments

consultancy CMSPI said: “Card fees only

seem to get higher, which, with the trend

towards inflation, is going to increase the

pressure on businesses and how they

price consumer goods.”

In 2015 interchange fees were capped

by the EU at 0.2 per cent for debit card

purchases and 0.3 per cent for credit

card purchases, but card companies just

increased the other two fees instead.

Scheme fees in the UK doubled between

2014 and 2018, according to the Payment

Systems Regulator (PSR), the industry

watchdog, while CMSPI found that they

went from an average of 0.02 per cent of

purchase prices in 2015 to 0.09 per cent

last year across the UK and Europe.

This may not sound much, but CMSPI

believes that the increases have cost

shops an extra £1.2 billion in this period.

It found that between 2015 and 2020

the average cost to retailers of accepting

card purchases increased from 0.46 per

cent per transaction to 0.48 per cent.

Again it sounds like a small amount, but it

equates to billions of pounds of extra

charges. Retailers paid about

£1.04 billion last year to accept cards,

according to the British Retail Consor-

tium. Consumers spent £854 billion on

credit and debit cards last year, according

to the trade body UK Finance.

Card transaction costs have risen as

much as 475 per cent since Brexit

because the 2015 cap no longer applies to

UK purchases from European shops. UK

payments to Amazon are processed in

Luxembourg.

Amazon said its dispute with Visa is

not about a single issue, but about Visa

CARD COSTS

Acquirer fee Scheme fee

Interchange fee

0.5%

0.4

0.2

0.1

0.3

Source: CMSPI

0

201520162017201820192020

Breakdown of transaction charges to

retailers in UK and Europe

Visa, Amex or

Mastercard:

why shops

may be

about to

get picky

There are many ways to pay for goods

these days and the old credit cards are

not always welcome, says George Nixon

using its position to keep costs high with-

out adding value. Visa told the Financial

Times that Amazon’s claim of high costs

was “absolutely inaccurate”. It may be no

coincidence that Amazon offers its own

credit card, which is run by Mastercard.

The PSR last week said it would “look

into how well this market is working,

including the issue of increasing card

fees. If necessary, we will intervene.”

Those most affected by Amazon’s

stance will be Barclaycard and Nation-

wide Visa credit cards. Holders will need

to use a debit card or a Mastercard to pay

on Amazon from January.

This may be a good time to look at the

cards in your wallet and to consider

getting one that offers cashback.

Amazon’s Mastercard pays Prime mem-

bers 3 Amazon points for every £2 spent

on Amazon, and non-members 1.5

points. You get 0.5 points for every £2

spent outside Amazon, and 1,000 points

gets you a £10 Amazon gift card.

John Lewis’s Partnership credit card

offers 5 points for every £4 spent in store

and 1 point for £4 spent elsewhere, a 0.25

per cent rewards rate, the same as Bar-

claycard’s cashback credit card. You get a

£5 voucher for every 500 points. Lloyds’

Cashback Credit Card offers 0.25 per cent

cashback on spending of up to £4,000 a

year, and 0.5 per cent on any spending

above that. All three are Mastercards.

Visa and Mastercard always said retail-

ers were free to choose which cards they

accepted. This is why some retailers

don’t accept Amex. Visa had a 40 per

cent share of the UK credit card market in

2019, according to the PSR.

Few UK retailers have the leverage of

Amazon to try to get a better deal, but

many will be watching the battle to see if

they can haggle for lower fees. Many are

already finding a way round the charges

thanks to the growth of direct bank-to-

bank payment systems, third-party com-

panies such as PayPal, and buy now, pay

later firms such as Klarna.

Transactions through Klarna exclude

the old credit card systems of Mastercard

and Visa. The retailer pays a fee directly

to Klarna, with no interchange or scheme

fees involved. Card companies have seen

this coming and are trying to adapt.

Amex offers a Pay with Bank Transfer ser-

vice to buy goods online and for custom-

ers to pay their bills. Some fundraising

platforms such as Just Giving have used

direct payments to accept cash instead of

getting donors to input their credit or

debit card details. Mastercard has a simi-

lar type of service, Pay by Bank App, and

is getting into buy now, pay later.

These services are still a fraction of the

size of the established card companies —

buy now, pay later was responsible for

£2.7 billion of spending last year, and

there were 2.2 billion credit and debit

card payments worth £78 billion in

August alone, UK Finance said.

“By itself this fight between Amazon

and Visa is not going to solve anything

fundamental, but it does suggest that

even the largest merchants are being

pushed too far by consistent increases to

card transaction fees,” Godwin said.

The two-year

phone contract

that really lasts

for three

Don’t upgrade your phone

Once you have paid off your

handset, phone companies

will try to persuade you to

upgrade, but if you don’t

your bills will go down

dramatically.

If you are on a rolling tariff

or a deal that has ended, you

should be able to negotiate a

cheaper airtime deal or go

elsewhere. There is sure to be

a cheaper Sim-only deal on

the market and you can

simply port your number to

the new Sim.

Ofcom found two years

ago that about 1.4 million

customers who were out of

contract were paying

£182 million a year more than

they would have done on

Sim-only deals.

You can get unlimited

calls, texts and 15GB of data

for £10 a month from Giffgaff,

according to the price

comparison service Uswitch.

If you need a handset,

paying for one upfront or in

monthly instalments with a

separate Sim-only deal is the

cheapest option.

Buying last year’s iPhone

12 with 64GB of storage would

have cost you £679, or £28.29

a month over two years. Add

the Giffgaff Sim-only deal for

£10, and you pay a total of

£918.96 over two years — and

you are not locked in to a

contract.

A phone and Sim plan with

12GB of data from Three

would cost £214.04 more —

£29 upfront then 24 monthly

payments of £46. You would

pay £1,155 with O2 and £1,145

with Vodafone.

Consider getting a

refurbished phone. Many

of the latest models are

available refurbished and

have been thoroughly tested

to ensure they’re in full

working order.

Ernest Doku from Uswitch

said: “Remember mobile

phone companies don’t need

to send you notifications

when your contract ends.”

When Apple released the

first iPhone in the UK in

November 2007, you could

pick one up for £269.

Ten generations of phones

later, the launch price of the

iPhone 13 in September was

£779. When you factor in the

cost of the contract, it is likely

to cost you more than £1,000.

As phones have become

more expensive, consumers

are taking more time to pay

for them. Rules from the

regulator Ofcom introduced

in 2011 limit mobile phone

contracts to two years, but

you can spend longer paying

off the phone.

Rising handset costs have

changed our bills so that a

good chunk of many people’s

payments are now towards

their phones. Part of the bill

is the airtime contract for

calls and texts — almost

always unlimited nowadays —

and data. This part can be on

a fixed term or on a rolling

basis, where you are not

locked in and can switch to a

different deal. The other part

is a finance agreement for the

handset, akin to taking out a

zero-interest loan. From next

June Ofcom will require

phone companies to display

the costs of the handset and

their airtime deals separately,

but the four leading phone

companies do this already.

It is also becoming easier

to move phone company

after your airtime contract

ends. O2 and EE generally do

not let you move to a new

phone company while you

are still paying off your

handset, but from December

17 all mobile firms will have to

let you switch when your

airtime contract ends.

George Nixon

Steve

Jobs with

the first

iPhone

in 2007