Credit card companies charge the merchant to accept cards, but there are hidden charges and anger that taxi drivers may be forced to accept card payments
Credit Card Charges Explained
The debate on credit and debit cards will always divide certain trades. I used to go to a respectable dentist where charges could be in the hundreds, but they refused cheques or card payments. This meant on one occasions having to carry £500 in cash for major dental work which considering it was 2012, shocked me.
If we all went to the supermarket and were told we could only pay by cash we would hit the roof, so why is it that some trades are still only accepting cash in 2015? Some may say it’s fear of modern technology. Others would accuse certain industries of not wanting to have a paper trail of income as The Secret Squirrel mentioned in a previous article.
Wherever you stand in this debate someone has to pay for the facility and in every case that is the person accepting the payments. As LTU specialises in passenger transport lets look at the taxi and private hire trade. I want to expand on the Squirrels article and explain other charges that are involved when accepting card payments.
Firstly the machine; Taxi and private hire drivers will require a mobile terminal which is connected via a sim card. The industry average charge for these terminals is £31.99 + VAT per month prior to any introductory offer. Having searched the market you can get charges as low as £20 plus VAT. As I expect most taxi and private hire drivers are self employed and under the VAT threshold they won’t be able to reclaim the VAT.
This then would mean an annual charge of £460.56, inclusive of VAT calculated using the £31.99 example. On top of this charge you will then have to pay for transactions fees which can vary depending on supplier. From the 1st March 2015, Visa changed the way merchants were charged for accepting debit cards.
Prior to March 2015, merchants were charged a flat rate for accepting debit cards which were in the region of 25 pence per transaction; this was fixed no matter how much the customer was paying, meaning it was the most cost effective card payment to receive. Sadly though, the new charges mean you either have to agree to a flat 1 per cent charge on the total value of the transaction or a 55 pence fixed charged.
Debit cards still have the cheapest rates, but what about credit cards? Well, here we open a can of worms as not all credit cards are the same. There are personal credit cards, business credit cards, corporate cards and international cards. On top of this you have credit cards that offer the card holder a percentage back on their spend or free points which can be exchanged for vouchers or discounts. Then you have cards that give you air-miles to spend with your favourite airline.
Accepting each one of these cards results in different charges. Following our recent tweets some argue that taxi drivers can’t pass on the charges or for that matter carry the fees themselves. I would not disagree but the credit card industry always makes the merchant pay for their enticing offers. If they offer 1 per cent cash back on your shopping the majority of this percentage will be picked up by the person or business accepting the payments.
Business credit cards, corporate cards and international cards all are subject to higher transaction fees for the merchant which can be 0.5 – 1 per cent higher than standards credit cards. Personal credit cards without any offer as described above will be subject to a minimum of 1.5 per cent to 3 per cent charge per transaction depending on the company providing the payment facilities. You also have American Express which charge the highest transaction fees which can be a minimum of 6 per cent with fees being as high a 10 per cent.
Finally, you have minimum contract terms (24 months) and transaction fees. This is where most people make a major mistake as they get confused with transaction fees and payment totals. The contractual minimum charge which can vary between £24.95 and £35.99 plus VAT is payable whether or not you accept any payments within that billing period, normally 28 days.
One month you take £1,000 in credit card payments. At 1.5% that would equate to £15 in transaction fees or 2% would be £20. This would mean you would have to pay the difference of £14.98 (1.5%) or £9.98(2%) per month to meet your contractual obligations. To have no further charges this would equate to £1,500 credit spend at 2 per cent, but this would be higher depending on the type of card you were accepting.
The total contractual obligation would be between £359.76 (£24.95 plus VAT pm) or £518.16 (£35.99 plus VAT pm) which when added to the mobile credit card machine would total between £820.32 pa (£15.77 pw) or £978.72 pa (£18.82 pw).
There are other ways of accepting credit cards without a terminal, via your mobile phone which is provided for free of charge, but the transaction fees are normally higher and can be in the region of 3.75 per cent. Other options available are to purchase a card reader from as little as £49 plus VAT, but again fees will be higher per transaction.
Obviously, these costs would be tax deductible against any personal tax liabilities and accepting card payments could even help increase turnover. If the trade can get together and approach a supplier with the potential for thousands of drivers these charges as outlined above could be even lower making the Hackney trade in London more competitive than others accepting credit or debit card payments.
But, and there’s always a but… somebody has to absorbed the cost of the credit card machine and the transaction fee. This is where the debate will rightly continue as it is a fine balance between killing the profit margin and working for nothing or accepting credit and debit cards and opening yourself to potential new income.
Saying that, researching the number of retailers, garages, online businesses adding a charge seems to be the norm. My local shop and some independent petrol stations charge a credit fee on transactions of less than £10, and these range from £1.26 to £1.50 and according to the owners most, if not all pay these fees without arguing.
The issue with the cab trade is that transaction fees could be less than £10 in the majority of cases. Transactions up to £10 could see a card surcharge of 50 pence which would cover any fees and help towards the terminal costs. Would passenger really argue against such a minimum fee?
We welcome a debate and please feel free to leave your comments below.