The small local businesses we rely on every day are being forced to hand over thousands of pounds a year in expensive transaction fees, as card transactions soar.
Far from hanging up ‘no cash’ signs and joining larger companies in the drive towards a cashless society, many are starting to plead with customers to revert to cash.
Corner shops, hairdressers and cafes across the country have had no choice but to accept card and contactless payments for increasingly small sums to meet customer demands.
But the costs of providing a card machine and facilitating these payments are threatening to cripple any profits they make.
The number of contactless payments made in Britain soared by 30 per cent last year, figures released last month by banking group UK Finance show. Nearly 60 per cent of all transactions were made using cards. A growing number of small purchases, worth as little as a few pence, are being paid for by card, as cash becomes increasingly inaccessible.
Access to banking facilities has continued to dwindle with Britain’s largest banks closing hundreds of branches this year. But the spending trend is threatening the livelihood of many small business owners. The vast majority – 99.9 per cent – of companies in the UK are classed as small businesses.
The cost of processing a card payment has increased by 600 per cent in the past nine years, according to campaign group Axe the Card Tax.
For every card payment, businesses pay four separate fees, which can total up to 2.5 per cent, according to online transaction provider GoCardless. This includes a merchant service charge, which covers the cost of processing payments, a terminal charge to have a chip and pin machine, authorisation fee, which tests that a payment will go through with the customer’s bank, and a gateway fee, which covers the cost of processing transactions online.
This means, for example, every time you buy a pint of milk for 90p from your corner shop and pay by card, the store owner could be paying the equivalent of 8p in fees.
As a result, many small businesses are encouraging customers to pay in cash. Among them is Martins Bakery in Cornwall, which has handed over more than £2,300 in card processing fees in the past year across its three shops. The bakery says it would have had to pay more than five times less – £400 – in bank fees if customers had paid with cash.
‘We take a lot of card transactions, which all add up during the year,’ says the bakery’s Nicola Caust.
‘It’s good to use cash locally. We want to make sure customers have the choice of both cash and card.’
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Meanwhile, last week Dan Lione, owner of Project Pies in Nottingham, asked customers to pay in cash to help cut his card payment fees, which are now £300 a month.
Dan says he will give every customer who pays in cash up to £1 off their purchase.
‘As costs are rising, it’s nice to be able to cut out the middleman and give something back to the people who support me,’ he says.
Tina McKenzie, of the Federation of Small Businesses, warns that the fees could push many small business owners over the edge.
She says: ‘At a time when small retailers are beset on all sides, anything that puts extra pressure on their margins, such as fees for processing card payments, is deeply unhelpful. Some of them are hanging on by a thread as it is.’
McKenzie warns that as cash recedes and small traders become increasingly reliant on card payments, then ‘monopolistic’ card companies could have even more power to drive up their rates. There is also the risk that these higher charges are eventually passed on to customers in the form of higher prices.
Since Brexit, there is no longer a cap on the amount banks can charge businesses for processing credit and debit card payments. Costs can vary across card machine providers. A card reader from Sum Up costs £39 to buy and businesses must then pay a 1.69 per cent fee for every use.
Worldpay machines charge monthly subscriptions, costing around £19 a month for 350 transactions. They also charge a 2.75 per cent plus 20p fee on an average credit card transaction.
Costs have piled further pressure on to companies already struggling to make ends meet as soaring overheads and a reduced number of sales threaten their survival.
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