Since about the middle of last December, Boston stores have lengthened the payment process. No, it's not about those who rummage through their purse looking for their wallet. Now, at checkout, a mandatory question is asked whether the buyer wants to purchase the package, and if so, whether he is willing to pay 10 cents for it.
City officials passed a bill banning plastic bags and giving merchants the right to charge for paper ones. Such measures are par for the course in many places. But it still creates inconvenience. The point, of course, is not about money, because 10 cents is a mere trifle. However, the innovation slows down the already slow payment process. The algorithm included an extra step and the time required to complete the package. And at this second, “one-step purchases” and the convenience of using EMV chips lose their relevance.
Residents of many American states may soon face another complication: merchants will begin to charge additional fees to cover the cost of processing the transaction. But, unlike paper bags, a fee will be required. And you will have to pay much more than 10 cents.
In the United States, this collection is not a new phenomenon. Under pressure from regulators, in 2013, card networks changed their rules of cooperation and allowed merchants, in some cases, to shift transaction processing fees to buyers. The methods for calculating commissions were also strictly regulated. At the same time, each state independently decided whether businesses operating in it would be able to take advantage of this opportunity.
Many states have given the green light to new rules, but most merchants have been reluctant to pass this type of cost on to customers. Moreover, merchants also stopped pushing customers to pay in cash or with a network card that was beneficial to the merchant. With intense competition in the retail environment, merchants primarily strive to complete the sale. And they understand that a wide range of payment options is an effective way to increase sales performance.
However, the topic of commissions soon received new life. The New York State Supreme Court ruled that merchants have the right to charge buyers commissions on transactions. So the court overturned the bans on card networks that were in effect earlier.
According to the court decision, merchants can oblige buyers to pay a commission, since under the law on freedom of speech they announce their rights to consumers. And they will do this when customers want to pay for purchases with branded cards from payment networks.
The “ban on the ban” provoked a wave of discussions about whether merchants will finally realize the dream of being exempt from paying transaction fees. However, there is hope that the public will timely assess the consequences of regulators’ intervention in the rules designed to protect consumers from unfair practices of merchants. After all, consumers may suffer. And in this case, regulators will have to reverse their decisions.
You don't have to look far for examples. It is enough to recall the experience of two markets that are considered the vanguard of payment innovations: Australia and the UK.
In response, the Australian Chamber of Commerce was forced to adopt strict rules for large retailers in 2016, and in 2017 for small retailers. The rules prohibited excess commissions and provided instructions on how to calculate them accurately. But this did not stop the malicious actions of merchants.
Last summer, the regulator issued a public warning to Cruisin' Motorhomes, which regularly charged its customers more than the rules. The company was also fined $12,600.
The essence of the message is clear - if merchants dare to break the law, they will face retribution.
In the UK, the inclusion of commission in the price of goods and services has been available without any restrictions since 1991. But merchants rarely took advantage of this opportunity. It was only in 2011 that the practice of additional fees was closely examined due to a complaint. Tourism operators mainly abused their rights by charging excessive fees at the end of the booking process. In 2012, regulators tightened the rules for setting commissions, but this measure was not enough.
Then the British regulator was forced to return to the basics, to the level of the rules of card networks prohibiting the collection of commissions from the buyer. The law came into force in January 2018, cracking down on merchants who still exploit legal gray areas.
Perhaps most discouraging from a consumer perspective was the practice where additional costs only surfaced at the end of the transaction, after the customer had already compared prices and chosen the best merchant. A 2012 survey by the Chief Economist of the UK Competition Authority assessed the harm caused to consumers by these actions. More than half (44%) of respondents are confident that they could have found a cheaper alternative if they had known about such tricks in advance. Nearly three-quarters (74%) of consumers believe merchants should have disclosed the final purchase price upfront, and 39% said the additional commission was higher than they expected.
People were perplexed and felt deceived.
Imagine, consumers will be told that for every purchase made using a card, they will be charged an additional percentage of the total amount. Buyers will have no choice but to accept the fee or switch to another merchant that does not include fees in their invoices.
Yes, the chance to charge an additional commission does not mean that all merchants will want to take advantage of it. Many Boston stores don't charge customers for paper bags, since customers still have to pick up the items somehow. Perhaps sellers add 10 cents to the price of some items or pay for them out of pocket, because giving out free packages has always been part of the checkout process. In general, for many clients, the main thing is that the payment process does not stall at such simple points as purchasing packages.
Merchant advocates argue that changes around surcharges will lead to the elimination of interchange fees, as passing the fees on to consumers will force banks and payment networks to reduce their fees. But this idea raises many doubts.
It is much more likely that consumer dissatisfaction will be directed at the merchants themselves. People love the convenience and prevalence of card payments. They rely on card networks and issuers to impose restrictions to protect consumers from errors or fraud in merchant systems.
Everything goes towards the initial ban on collecting transaction fees from clients. This decision was clearly made for the sake of consumers. It is intended to protect them from the arbitrariness that has already occurred in Australia and the UK. Card networks, like any platform, must be concerned about all stakeholders and prevent harmful behavior by participants.
Regulators should embrace this view rather than condemn it. Such rules ensure that consumers maintain trust in the payment ecosystem. Without this, any innovation and associated benefits may simply grind to a halt.
(c) Original author: Karen Webster
City officials passed a bill banning plastic bags and giving merchants the right to charge for paper ones. Such measures are par for the course in many places. But it still creates inconvenience. The point, of course, is not about money, because 10 cents is a mere trifle. However, the innovation slows down the already slow payment process. The algorithm included an extra step and the time required to complete the package. And at this second, “one-step purchases” and the convenience of using EMV chips lose their relevance.
Residents of many American states may soon face another complication: merchants will begin to charge additional fees to cover the cost of processing the transaction. But, unlike paper bags, a fee will be required. And you will have to pay much more than 10 cents.
Ban on ban
We are talking about the commission per transaction. It refers to an additional fee charged by merchants when consumers use card products to pay for their purchases.In the United States, this collection is not a new phenomenon. Under pressure from regulators, in 2013, card networks changed their rules of cooperation and allowed merchants, in some cases, to shift transaction processing fees to buyers. The methods for calculating commissions were also strictly regulated. At the same time, each state independently decided whether businesses operating in it would be able to take advantage of this opportunity.
Many states have given the green light to new rules, but most merchants have been reluctant to pass this type of cost on to customers. Moreover, merchants also stopped pushing customers to pay in cash or with a network card that was beneficial to the merchant. With intense competition in the retail environment, merchants primarily strive to complete the sale. And they understand that a wide range of payment options is an effective way to increase sales performance.
However, the topic of commissions soon received new life. The New York State Supreme Court ruled that merchants have the right to charge buyers commissions on transactions. So the court overturned the bans on card networks that were in effect earlier.
According to the court decision, merchants can oblige buyers to pay a commission, since under the law on freedom of speech they announce their rights to consumers. And they will do this when customers want to pay for purchases with branded cards from payment networks.
The “ban on the ban” provoked a wave of discussions about whether merchants will finally realize the dream of being exempt from paying transaction fees. However, there is hope that the public will timely assess the consequences of regulators’ intervention in the rules designed to protect consumers from unfair practices of merchants. After all, consumers may suffer. And in this case, regulators will have to reverse their decisions.
You don't have to look far for examples. It is enough to recall the experience of two markets that are considered the vanguard of payment innovations: Australia and the UK.
Old story
The collection of transaction fees has been legal in Australia since 2003. Taking advantage of this, local merchants inflated prices for goods and services. Some sellers, instead of the required fee, included hefty commissions on the purchases of unsuspecting consumers.In response, the Australian Chamber of Commerce was forced to adopt strict rules for large retailers in 2016, and in 2017 for small retailers. The rules prohibited excess commissions and provided instructions on how to calculate them accurately. But this did not stop the malicious actions of merchants.
Last summer, the regulator issued a public warning to Cruisin' Motorhomes, which regularly charged its customers more than the rules. The company was also fined $12,600.
The essence of the message is clear - if merchants dare to break the law, they will face retribution.
In the UK, the inclusion of commission in the price of goods and services has been available without any restrictions since 1991. But merchants rarely took advantage of this opportunity. It was only in 2011 that the practice of additional fees was closely examined due to a complaint. Tourism operators mainly abused their rights by charging excessive fees at the end of the booking process. In 2012, regulators tightened the rules for setting commissions, but this measure was not enough.
Then the British regulator was forced to return to the basics, to the level of the rules of card networks prohibiting the collection of commissions from the buyer. The law came into force in January 2018, cracking down on merchants who still exploit legal gray areas.
Perhaps most discouraging from a consumer perspective was the practice where additional costs only surfaced at the end of the transaction, after the customer had already compared prices and chosen the best merchant. A 2012 survey by the Chief Economist of the UK Competition Authority assessed the harm caused to consumers by these actions. More than half (44%) of respondents are confident that they could have found a cheaper alternative if they had known about such tricks in advance. Nearly three-quarters (74%) of consumers believe merchants should have disclosed the final purchase price upfront, and 39% said the additional commission was higher than they expected.
People were perplexed and felt deceived.
How much is consumer trust worth?
Let's return to the USA. The potential for merchants to charge commissions could do more than just harm consumers. This could slow down or stop the progress that payment innovators and the payments ecosystem have made over the past decade in optimizing checkout.Imagine, consumers will be told that for every purchase made using a card, they will be charged an additional percentage of the total amount. Buyers will have no choice but to accept the fee or switch to another merchant that does not include fees in their invoices.
Yes, the chance to charge an additional commission does not mean that all merchants will want to take advantage of it. Many Boston stores don't charge customers for paper bags, since customers still have to pick up the items somehow. Perhaps sellers add 10 cents to the price of some items or pay for them out of pocket, because giving out free packages has always been part of the checkout process. In general, for many clients, the main thing is that the payment process does not stall at such simple points as purchasing packages.
Merchant advocates argue that changes around surcharges will lead to the elimination of interchange fees, as passing the fees on to consumers will force banks and payment networks to reduce their fees. But this idea raises many doubts.
It is much more likely that consumer dissatisfaction will be directed at the merchants themselves. People love the convenience and prevalence of card payments. They rely on card networks and issuers to impose restrictions to protect consumers from errors or fraud in merchant systems.
Everything goes towards the initial ban on collecting transaction fees from clients. This decision was clearly made for the sake of consumers. It is intended to protect them from the arbitrariness that has already occurred in Australia and the UK. Card networks, like any platform, must be concerned about all stakeholders and prevent harmful behavior by participants.
Regulators should embrace this view rather than condemn it. Such rules ensure that consumers maintain trust in the payment ecosystem. Without this, any innovation and associated benefits may simply grind to a halt.
(c) Original author: Karen Webster
