Five-fold increase in interchange fees: 7 consequences for small businesses
Last week, the UK’s Payment Systems Regulator announced that both Visa and Mastercard interchange fees in the European Economic Area (EEA) have increased five-fold.
At a time when retailers are struggling to survive amidst record inflation, hikes in energy bills, and a drastic fall in consumer spending, many smaller businesses are subsequently facing extinction. Robert Pailin the CEO of Total Processing, has provided insight into how interchange fees may impact your business. He also had the following to say: “Interchange fees have skyrocketed since Brexit and the cost of living crisis, plunging many retailers into doubt of their future. And, with the business energy bill set to be reduced from March and interchange rates usually rising in April, 2023 is off to a rocky start for many – particularly small businesses.
Being aware of how interchange fees work and the consequences they may have for your business is therefore vital. Knowing the negatives of higher rates can allow you to alter your business model and even change your payment processor to a better option. While times are currently tough, a corner has begun to turn on inflation, meaning that from Spring, small businesses may be able to breathe a sigh of relief.”
Interchange Fees: 7 Ways They Can Impact Small Businesses
- Higher Administrative Costs
“Between the cost of living crisis impacting all retailers, via suppliers or directly, and an increase in interchange costs, many businesses are struggling. This is particularly drastic for smaller businesses that lose a higher percentage of their profits to processing fees, leading to an increased financial burden.”
- Less Opportunity For Expansion
“In times of financial turmoil, businesses must be able to adapt, catering their products to new markets and industries to capitalise on all profits. Unfortunately, an increase in interchange fees means that smaller businesses are priced out of doing so.”
- Loss Of Customers
“To cover losses instigated by higher fees, many retailers will be forced to increase the prices of products and services. For retailers in poor areas or those selling products in a highly competitive market, this can decimate a business.”
- A Reduction In Cash Flow
“Interchange fees, like all other charges, can be subject to delays and errors. Unfortunately, these can be felt significantly by a merchant, particularly if they are waiting on a large purchase to clear. Similarly, the consumer might be affected, losing confidence in the retailer, causing a strained relationship between the merchant, their bank and card issuer.”
- Limitations On Payment Options
“Many small businesses are unable to accept credit card payments due to the rapid spike in interchange fee rates. With many retailers and individuals starting the move towards being ‘cashless’, failure to offer options means losing out on potential customers.”
- Lack Of Transparency
“At a time when businesses are struggling, interchange fees can complicate the trust between merchants, consumers and banks. These rates can be complicated to understand, and may even lead to surprise cuts to profits, forcing smaller retailers to budget at a time when doing so is near impossible.”
- Less Flexibility
“All payment processors will offer varying plans. Your choice of plan will be dependent on the size of your business and the amenities offered, with better plans often costing more money – which many smaller businesses will not be able to cover. As a result, many small to medium-sized enterprises (SMEs) may struggle to compete with larger entities.”
