Being hit with additional charges when paying for purchases at brick-and-mortar businesses, online shops and airlines using a credit card is nothing new for Swiss consumers.
In an effort to protect consumers, the Competition Commission (COMCO) decided to cut interchange fees charged by credit card companies from 0.7% to 0.44%. The reduction in fees that merchants must pay to card payment processing networks and issuers should help merchants cut losses and ultimately avoid passing the high cost of accepting credit cards on to consumers in the form of higher prices.
But so far there has been little change in the cost of goods and services. There are three reasons for this.
First of all, many large retailers already add a surcharge to purchases paid for using a credit card.
The problem: Payment processors like SIX and Aduno, which act as acquirers and connect merchants to credit card issuers have been pushing for a ban that would forbid merchants from charging more for credit card payments. But at the end of the day, merchants are the acquirers’ paying customers.
It’s also unlikely that retailers which already accepted credit card payments without a markup before the interchange fee reduction will cut their prices and profits to pass on the savings to customers.
Thirdly, Swiss credit card issuers have been steadily raising credit card fees, as assessments by moneyland.ch show. These rate hikes are partly due to losses incurred by lower interchange fees, for which credit card issuers must find alternative sources of revenue. Indirectly, this too affects credit card users.
The major credit card payment networks like Visa and Mastercard have also been fighting hard to ban merchants from adding a surcharge for credit card payments. The reasons behind this are pretty obvious. The more payments are made using their cards, the more interchange fees Visa and Mastercard can glean off Swiss merchants.
Hefty markups for credit card payments
A survey by moneyland.ch shows that many popular online stores, travel agents and airlines add hefty markups to purchases made via credit card:
Brack: No markup
Digitec: No markup
Ex Libris: No markup
Galaxus: No markup
Hotelplan: 20 francs
Leshop: No markup
Media Markt (Online): No markup
Melectronics: No markup
Microspot: No markup
Nettoshop: No markup
Ricardo: No markup
Siroop: No markup
SWISS: 1.65% (30 francs maximum)
TUI: 1.5% (hotels, holiday packages) or 25 francs (holiday accommodation). No surcharge for Viseca cards.
Merchants generally agree on the reasons for adding a surcharge: Payments made by credit cards involve much higher costs than payments made using other payment methods, and these higher costs should only affect those who choose to use that payment method. If merchants did not add a credit card mark-up, the costs of accepting credit cards would be passed on to all consumers, including those who prefer to pay using cash or debit cards, in the way of higher prices.
Small businesses pay the highest interchange fees
Although acquires like Aduno and SIX have reduced their fees, the cost of accepting credit cards is still shockingly high. For a small business, receiving payment via credit card can easily shave up to 2% off revenues. Then there’s the cost of purchasing and maintaining payment terminals. On top of that, merchant fees charged by the acquirer greatly surpass the basic interchange fees levied by credit card payment networks.
Big businesses have a distinct advantage over small businesses because, thanks to the high revenues they generate, they are able to negotiate acquirer fees well below the 2% that small businesses have to deal with. So in the case of major retailers and other big businesses, it’s pretty difficult to justify the 2% credit card surcharges.
So small businesses are hit hardest by the high fees charged by acquirers. Ironically, in an effort to attract customers or to avoid losing them, many small online shops don’t add a surcharge for credit card payments, and simply take the hit financially.
Tip for small businesses: Acquirer fees are negotiable. The basic rule here is, the higher your revenues processed by the acquirer, the lower the merchant fees you will have to pay for each transaction. As your business grows and your revenues climb, it’s worth approaching your merchant acquirer and renegotiating fees. Getting quotes from as many different acquirers as possible before you settle on one is also recommendable. Acquirers in Switzerland include SIX, Aduno, ConCardis and B+S Card Service. Smaller acquirers generally offer more favorable conditions.
Tip for consumers: If you want to use a credit card, stick with merchants that don’t add a surcharge for credit card payments, in so far as it makes financial sense to do so. Paying with a debit card (Maestro, for example) can work out cheaper. No matter where you pay, your credit card has its own set of fees and charges, so make sure to use the cheapest credit card available.
Credit card comparison