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Payment regulations: Approach with caution

New payment regulations could bring savings to SMEs - but Raj Sond, general manager at First Data Merchant Solutions, says bosses should check the small print.

As of 1 January, payments giants Visa and MasterCard have been forced to adhere to new regulations that place a cap on hefty interchange fees for cross-border domestic card transactions.

These fees are paid by the retailer's bank to the cardholder's bank to cover the cost of processing the payment. With the enticing possibility of these savings being passed on to merchants, many small businesses have been excited by the changes.

However, the small print might not quite match up to the alluring headlines. The payments landscape is a confusing territory to navigate and many SME owners struggle to understand this area of business. While taking payments is essential to running a business, few entrepreneurs followed their dream of starting a business to spend their time getting to grips with the payments world.

While the opportunity to save some money is a pleasing prospect, these regulations need to be approached carefully. The number of tasks for which a small business owner is responsible can make running a small business day-to-day a real struggle. As such, it is vital for small business owners to research new regulations before jumping to implement something that could prove an unnecessary hassle.

The new regulations, known as the Cross Border Domestic Interchange Programme (CBDIP), mean that cross-border payments processors (merchant acquirers) are able to offer merchants a capped interchange fee of 0.2 per cent for Visa debit cards (currently between 8p and 10p), and 0.3 per cent for Visa credit cards (currently between 0.77 per cent and 0.87 per cent) for domestic transactions. An important point to mention here is that this regulation is for cross-border processors only.

A number of key exceptions concerning the regulation could mean that embracing CBDIP might not deliver the savings small merchants are hoping for. It is of paramount importance that small merchants analyse what types of card they accept most, as CBDIP will have the greatest impact on credit card transactions. If you are an independent luxury car seller, for example, this move could have a positive impact due to the tendency for consumers to spend large sums of money using their credit cards. In contrast, if your products tend to have a low ticket value, the business is unlikely to see a sudden increase in savings. According to the British Retail Consortium (BRC), credit cards actually only account for only nine per cent of transactions in the UK.

Another area to consider is whether the payments are secure. CBDIP is only being implemented with secure payments, meaning that technologies such as Verified by Visa and EMV (chip and pin) must be in place. Further to this, if a merchant's primary customer base is overseas, they may not feel any benefits of the programme because CBDIP only affects domestic transactions. It is also worth noting that there is a €100 joining fee and annual €50 maintenance fee for each store, so it is important to weigh up whether the benefits will outweigh the costs.

The future is bright

The buzz surrounding CBDIP has to a large extent meant that further regulations coming in the near future that might be more relevant to UK small businesses have been overlooked. From 1 March, the rate for domestic debit interchange fees will be catching up with overseas regulations, decreasing to 0.2 per cent. Similarly, credit card interchange fees are likely to be dropped to 0.3 per cent by the end of the year.

Given that it takes 60 days to enrol in CBDIP, small merchants must decide whether the savings they may make prior to the March regulation would be worth the cost of change.

The BRC found that the use of cash has declined by 10 per cent over the past five years. While keeping on top of payments processing updates can be challenging for small business merchants, the demand for plastic means this payments acceptance is not a process that can be ignored. Small businesses should analyse their payment acceptance processes and seek expert advice on new regulations that come into play where necessary.

As with any key business decision, small business owners need to spend time reading the small print to ascertain what CBDIP will mean for their business before taking action.

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