For many small businesses, card payments have become the preferred way for customers to pay for goods and services. Whether you operate an online store, a retail shop, or a service-based business, accepting debit and credit cards is now an essential part of doing business. However, changes to credit card charges have significantly affected how businesses can recover payment processing costs from customers.
This guide explains the changes to credit card charges, when they came into effect, how they affect small businesses, and the practical steps business owners can take to manage these changes while maintaining customer satisfaction and profitability.
When do the changes come into effect?
The changes to credit card charges came into effect on **13 January 2018** following the introduction of the **EU’s Second Payment Services Directive (PSD2)**. Although the UK has since left the European Union, these rules were incorporated into UK law and continue to apply.
The purpose of the legislation was to improve transparency in payment services and ensure consumers were not unfairly charged additional fees simply because they chose to pay by card. Before these changes, many businesses added payment surcharges that often exceeded the actual cost of processing the transaction.
The new rules were designed to create a fairer and more competitive payment environment for both consumers and businesses.
What are the changes?
Under the new regulations, businesses are **not permitted to charge customers extra** for paying with most consumer payment methods.
This includes payments made using:
- Visa debit and credit cards
- Mastercard debit and credit cards
- American Express cards issued under consumer agreements
- PayPal
- Apple Pay
- Google Pay and other consumer electronic payment methods
The ban applies to both online and in-person transactions involving consumer cards.
Businesses can still include payment processing costs within their overall pricing strategy, but they cannot display or add a separate surcharge specifically because a customer chooses to pay by card.
These changes help ensure that customers know the full price of a product or service before reaching the checkout.
How have HMRC dealt with the changes?
HMRC also introduced changes to its own payment policies.
Businesses and individuals can no longer use personal credit cards to make certain tax payments where credit card surcharges previously applied. HMRC has encouraged taxpayers to use alternative payment methods such as:
- Debit cards
- Direct Debit
- Bank transfers
- Faster Payments
- CHAPS
- Bacs
These payment options help reduce processing costs while providing secure methods for paying tax liabilities.
How can small businesses deal with the changes?
Many small businesses previously relied on card surcharges to recover merchant processing fees. Since these charges are no longer permitted for consumer card payments, businesses need to review their pricing strategy.
Some possible approaches include:
Absorb the processing costs
For businesses with relatively low transaction values or healthy profit margins, absorbing the payment processing fee may be the simplest solution. The additional cost per transaction is often small and can be outweighed by improved customer satisfaction and higher conversion rates.
Build the cost into your pricing
Many businesses choose to incorporate card processing fees into the overall price of their products or services. This allows pricing to remain transparent while ensuring payment costs are recovered across all sales rather than being charged separately.
Before increasing prices, consider:
- Your competitors’ pricing
- Customer expectations
- Overall profit margins
- Market demand
Even a small price adjustment across your product range may be enough to offset payment processing costs.
Review your merchant provider
Merchant service providers offer different pricing structures and transaction fees. Shopping around for a better payment provider could significantly reduce your processing costs without affecting your customers.
Compare providers based on:
- Transaction fees
- Monthly charges
- Settlement times
- Customer support
- Integration with your accounting software
Choosing the right provider can improve both efficiency and profitability.
Encourage lower cost payment methods
While businesses cannot surcharge consumer card payments, they can encourage customers to use payment methods that are less expensive to process.
Examples include:
- Bank transfers
- Direct Debit for recurring payments
- Debit cards
- Open Banking payment solutions
Providing multiple payment options gives customers greater flexibility while helping businesses manage transaction costs.
Give customers other payment choices
If your business decides to reduce or stop accepting certain payment methods, it’s important to communicate this clearly and provide suitable alternatives.
Customers generally appreciate having several convenient ways to pay, including:
- Debit cards
- PayPal
- Apple Pay
- Google Pay
- Direct bank transfers
- Standing Orders for regular payments
Offering multiple payment options can improve the customer experience and reduce abandoned purchases.
If you decide to increase your prices to recover payment processing costs, ensure the increase remains competitive. Transparent pricing, excellent customer service, and loyalty rewards can help maintain customer trust and minimise the impact of higher prices.
Final thoughts
The changes to credit card charges were introduced to improve fairness and transparency for consumers while simplifying payment regulations. Although businesses can no longer add separate surcharges for most consumer card payments, there are still several ways to manage processing costs effectively.
By reviewing your pricing strategy, negotiating with payment providers, offering a range of payment options, and focusing on customer experience, small businesses can continue to accept card payments without significantly affecting profitability.
Regularly reviewing your payment systems and operating costs will help ensure your business remains competitive while complying with current UK payment regulations.
