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Hidden Charges When Paying Bills

By: Lucy Debenham BA (hons) - Updated: 8 Sep 2012 | comments*Discuss
Shopping Bills Office Of Fair Trading

You’d be forgiven for thinking that when you make a purchase in a shop, you’re just paying the ticket price on the goods you’re buying. But what you may not realise is you’re probably having to incur a hidden fee that hikes up the price of your goods. This is regardless of whether your payment method is via debit card, credit card, cheque or cash. Find out why card companies are profiting from your shopping bills, and how you’re losing out.

Hidden Fees in Your Shopping Bill

When shopping, consumers are thought to indirectly incur two types of hidden fees ‘behind the scenes’. These charges originate from card companies like Visa and Mastercard.

The retailer’s bank (known as the acquiring bank) will charge the retailer for processing each credit card transaction. This charge is known as the Merchant Service Charge (MSC). The total MSC usually adds up to roughly 3% of the shopper’s final purchase amount. This percentage comes about as the result of two separate charges.

Firstly, the retailer’s acquiring bank charge the retailer a fee of around 1%. This is because the retailer’s acquiring bank has to act as an interface between the retailer and the shopper’s credit card company. The acquiring bank has to acquire the funds necessary for the transaction from the card issuer’s bank. Therefore the transaction is effectively between the card issuer and the retailer.

Multilateral Interchange Fee

This is where the second hidden fee is incurred. The bank behind the customer’s credit card will in turn charge the retailer’s (acquiring) bank for the privilege of using its card service. This charge is known as the Multilateral Interchange Fee (MIF), sometimes just referred to as the Interchange Fee. It usually amounts to roughly 2% of the customer’s final purchase price.

So the retailer incurs total charges amounting to roughly 3% just for processing a credit card transaction. The result is that the retailer only gets around 97% of the shopping bill amount if a card is used as the payment method. So to make sure that they can recoup this fees, these MSC and MIF charges are usually passed on to the consumer indirectly by means of inflating the price of goods or services, but is not declared.

So when paying your shopping bills, although you may pay with cash or prefer cheques, you will still be paying a hidden extra charge because other people choose to use their cards to make their purchases. However, the biggest problem is that the fees set by companies like Visa and Mastercard are not transparent – they are set at the companies’ own discretion without any consultation to the shopper or retailer. Therefore in theory (and perhaps in practice), these charges could exceed the actual cost of using the card services. The knock on effect is that shopping prices are steadily increasing.

What’s Being Done About It?

Unfortunately, when out shopping you won't notice any differences just yet.

Because effectively the financial institutions behind these card issuers can, and do, set their own interchange fees, there is the potential that they could exploit the lack of transparency. It is felt in some quarters that the Interchange fees are no longer used to cover the costs of issuing payment cards to bank customers, but instead used as a profit-making venture to cover the costs of providing offers such as loyalty schemes. It is also thought that, despite the fact that the cost of technological card processing is reducing, the Interchange fees are not following suit – they even appear to be steadily rising.

The Office of Fair Trading has been looking into this issue for quite some time. This is mainly because retailers have no choice but to accept these cards and incur the fees, yet have absolutely no say or room to negotiate the fees. No decision has been reached thus far, although The Office of Fair Trading has expanded the investigation to include immediate debit cards too. There is concern that card issuers will be increasing debit card fees to cover any losses as a result of the interchange fees investigation.

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