'Banks' hidden card fees are driving us to oblivion', say struggling petrol retailers - Mail Online

Full story available at the Mail Online.

By Helen Loveless

Independent petrol retailers are being pushed closer to the brink by costly bank card transaction fees, an investigation by Financial Mail has disclosed.

The garages are seeing significant amounts of their profits wiped out because of the fees charged by banks and card acquirers when they process card payments.

The increase in charges, combined with the rising cost in fuel and the competition threat posed by supermarkets, is causing more independent petrol retailers to go out of business.

There are now fewer than 9,000 petrol stations, of which about 5,200 are independent.
Only 20 years ago there were 21,000 and according to the Independent Petrol Retailers’ Association 200 to 300 sites are closing every year. 

Pressure has intensified because of the growing use of premium cards and the mass promotion of reward cards that offer benefits such as cashback on fuel purchases. But the cost of those cardholder benefits is then passed on to retailers in the form of higher transaction charges.

Rewards cards include the AA’s credit card that gives cashback on fuel spending and Santander’s 123 credit card that offers customers three per cent cashback if they use the card to buy fuel, although Santander, headed by Spanish chief executive Ana Botin, said that it, not the retailer, bore the cost of cashback from the card.

Typically firms pay an acquiring bank a fee for processing card transactions. However, they also have to pay an ‘interchange fee’, which is levied by the card-issuing banks on the acquiring bank and then passed on to the retailer.

The interchange fees are set by MasterCard and Visa, the member organisations of the banks. Critics claim the interchange fees levied on reward and premium cards are far higher than on standard credit and debit cards.

One independent petrol retailer who did not want to be named told Financial Mail his monthly card transaction charges had risen from £400 to £600 because more people were using premium and reward cards. ‘The charges we pay have typically been about one per cent for a credit card transaction, but on premium card transactions this is about two per cent,’ he said. ‘Given that we struggle to make three pence profit per litre of fuel, this wipes out any profit.

‘We have no choice but to increase the price of fuel, which penalises people who don’t use premium cards. It also means we look even less competitive compared with the big petrol forecourt chains and places such as Tesco.’

Barrie Richards, an independent petrol retailer in St Blazey, Cornwall, is paying an average of £28,000 a year in charges and says the use of premium cards has ‘exploded’ in the past six to eight months.

Barrie, a member of the Retail Motor Industry’s executive committee, said: ‘If we accept Amex cards, it costs us two per cent of the transaction, which wipes out our entire gross profit on fuel. But at least we know it is Amex upfront and can choose to decline the card.

‘On other cards we have no way of knowing. My margins are being destroyed by the banks, which are keen to attract customers.’

Tony Barlow, 65, who has run a garage in Shrewsbury, Shropshire, for 11 years, said the economics had become increasingly difficult in the past year. ‘I am fed up with banks that offer premium cards dipping into my pockets to finance incentives to make their cards look more attractive,’ he said. The Office of Fair Trading is investigating the issue following a case on the Continent. When that judgment is handed down, probably in the middle of next year, the OFT will decide on action in Britain.

An OFT spokesman described interchange fees as ‘something of a hidden revenue stream’ for card-issuing banks. He said: ‘There has been a real expansion in premium cards in the UK and typically the interchange fee is twice as high as the standard because they are going directly to pay for the member benefits being offered.’

He said that because retailers can’t identify the reward cards, they cannot impose surcharges to compensate. Instead, they have to raise prices across the board.
But change may not be far off. The spokesman said: ‘The implications of the court judgment could well be that MasterCard and Visa are no longer free to set these charges at whatever level they want. If so, fees could fall or even be removed.’

Banks claim they bear the cost of promotions or cashback themselves but the fact that interchange fees are higher on such transactions contradicts this. Acquiring banks can choose not to pass on the full interchange fee to retailers but, unsurprisingly, rarely do.

HSBC Merchant Services was previously part of HSBC bank but is now an independent company. According to Chris Davies, managing director of HSBC Merchant Services, there are more than 150 different types of interchange fees, which differ depending on the type of card being used, the card brand, the size of the accepting merchant and the type of transaction – whether it is online or in store.

In response to concerns, HSBC Merchant Services recently introduced a new form of invoicing, which breaks down all individual card fees for retailers, so they can see exactly what they are being charged.

A spokesman for Visa said it did not offer premium cards. ‘The interchange fees are different for different cards, but the rates are available on our website,’ he said. MasterCard refused to comment.

Tuesday, 8th November 2011

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