Online credit card charges: Wiping any bargains
As more and more businesses operate their sales almost exclusively over the internet, people are losing the option of paying with anything but a credit or debit card.
This change is costing consumers untold millions through processing fees, especially with credit cards.
This expense is felt particularly hard when it comes to air travel arranged online directly with an airline. No ATOL protection is provided and therefore a credit card purchase offers desirable reimbursement protection if the airline goes belly-up, like XL did last September.
Banks and some cards charge firms for processing transactions, and retailers pass some or all of that cost on to customers. But are some firms are making excess profits from credit and debit card charges? Johanna King explores.
The cost for consumers
Several airlines, of both the traditional and no-frills variety, were examined to see exactly how much they charge.
Discount giant Ryanair seems to have the highest fees. The company states in its terms and conditions that they will charge a "payment handling fee" of as much as £5 per person, per one way flight.
"To defray the substantial administration costs we incur when processing credit and debit cards or ELV direct debits a handling fee applies to each passenger per flight segment," the Ryanair website explains.
A current promotion allows Visa electron customers to book without any additional fee, but all other customers, including those using a Ryanair credit card, are charged more.
A return flight between Gatwick and Alicante, for example, has an extra charge of £9.50, or £4.75 per flight segment. For two passengers booking together, the fee doubles to £19.
Making a reservation with BMIBaby costs slightly less. For a return flight, the website adds £4 per person for the use of a credit card, but flights purchased with a debit card or BMI credit card have no extra cost .
BMI, however, does allow itself to charge as much as £7 per person on a return ticket.
"All bookings and changes made using a credit card are subject to a processing fee of £3.50 per passenger per one way flight," the company's terms and conditions say.
"Bookings made using a debit card are subject to a processing fee of £2.50 per passenger per one way flight. There is no charge for payments made using a visa electron card."
EasyJet, is possibly the cheapest of the three, charging a flat £1.95 fee per booking, except with Visa electron and Carte Bleue, which can be used at no extra cost.
The use of a credit card, however, costs £1.95 plus a percentage rate.
"Bookings made by Visa Credit Card, MasterCard, Diners Club, American Express, UATP/Airplus will incur an additional fee of 2.5 per cent of the total transaction value, with a minimum charge of £3.50, whichever is greater," EasyJet terms and conditions say.
Andrew McConnell, UK communications manger for EasyJet, said: "We charge for credit card use to give customers an incentive to use debit cards instead of credit cards, since we incur a higher cost for credit card use."
Even more traditional airlines like British Airways pass on card costs to customers, although the costs are lumped in to a general "taxes and fees" category.
A charge of £4.50 per ticket is added to each transaction made with a credit card. The use of a debit card carries no additional fee.
"We have to pass on the cost because that is what the credit card companies charge us. We don't make a profit off that," a spokesperson for British Airways says.
The price of a credit card
A retailer incurs a cost each time a credit card is used, mainly from banks. Some credit cards, like American Express, also charge a company to process purchases made with their cards.
Other credit cards, like the one offered by Virgin Money, do not add an additional fee.
Grant Bather, public relations manager for Virgin Money, says: "Virgin Money does not charge a business to process a credit card transaction.
"When a customer makes a purchase at a retailer, the retailer's bank charges apply. This fee varies by retailer."
The British Retail Consortium (BRC) found an average cash transaction costs retailers two pence, a debit card payment eight pence and a credit card payment 35 pence to process with the bank or card company.
Andrew Bond, spokesperson for Barclaycard, which offers a credit card payment processing service to firms, said the actual price paid to them each month is much more complicated than a simple average.
"Unfortunately there is not one answer to how much we charge - some of the factors that dictate this include size of the retailer, nature of their business, volume of transactions, average transaction value, the channels through which they accept payments - this is not an exhaustive list," he says.
According to Barclaycard's business payment acceptance website, a retailer that accept cards in store pays both to rent or buy a card machine and to set up the payment system.
The company would also pay a flat fee for debit card usage and make a percentage payment based on the value of credit card purchases.
"If the fee is based on a percentage of the transaction amount then obviously a higher transaction equals a higher fee," Mr Bond says.
But the BRC says is unnecessary to determine the credit card fee based on a percentage of the transaction, because the cost of processing a credit transaction does not depend upon the amount purchased.
BRC director general Stephen Robertson says: "There should be a lower fixed fee per transaction which actually reflects the true cost of processing."
Charges don't end there, however. The costs seem to be even more complicated with internet purchases.
Online payment service provider Secure Hosting says that to process online transactions, a business needs a merchant provider (a bank that can process the purchase) like Barclay and a payment service provider (PSP) that connects the website to the bank.
Secure Hosting estimates that a merchant account costs £75 to £250 to set up, plus a service charge between 1.6 and 2.8 per cent on credit card transactions. The use of debit cards cost 20 to 50 pence per purchase.
Charges for a PSP include a setup fee - £60 with Secure Hosting - an annual fee and a transaction fee.
Annual fees range from £85 to £ 249, according to Secure Hosting, and transaction fees - which range from 7.5 to 25 pence per purchase - decrease as more charges are made.
Despite varying accounts of costs, airlines are often charging customers much more than a few pence - in fact the charge is often several pounds.
No standard charges
Part of the reason costs and charges for using credit cards are so varied is that there are no set standards.
Michelle Whiteman, spokesperson for the UK payments association APACS, says: "There are no laws governing how much a retailer can charge for the use of a credit or debit card."
Some travel agents, like STA Travel and Thomas Cook, also charge a fee for using credit cards. But most businesses with storefronts do not openly add costs that penalise card users.
"Retailers try to absorb as much of the cost as they can without passing it on to customers, but they are a business," BRC spokesperson Krishan Rame says.
The cost of card use is typically absorbed into general pricing, but the BRC thinks this would be unnecessary if credit processing fees were less.
"The BRC has been trying to get credit card companies to charge prices that more reflect the cost of a transaction," Mr Rame says.
The BRC's Mr Robertson said fees that better represent the actual costs of processing would benefit the average spender.
"Retail is a highly competitive industry. If charges for every payment method were as low as they are for cash, over £800 million of savings would be passed down to customers through the prices they pay," he says.
The only advice for consumers seems to be think carefully before what card you use, so a cheap flight or online discount becomes far more costly than you believe.
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