Guest Slot – Payments Insider-Beware the great card switch

He knows the banking industry but they don’t want to know him.

Earlier this year Tesco Bank had grand plans to move its Visa Cards to MasterCard-branded credit cards under the World MasterCard banner and enjoy the extra transaction charges that these cards would bring to its coffers.

But this went off the rails when its retail division squealed about the pain these higher transaction charges were inflicting on the group’s own supermarkets and customers’ desire for a Visa-branded card in order to pay for their Olympics tickets.

This was a component of the confused strategy that had been emanating from the retailer’s banking division and may have played a part in the forthcoming departure of its boss Andy Higginson. His precarious position had been predicted in May on [See article here].

This website also highlighted that this move by Tesco to issue cards that inflicted onerous charges on retailers was a hypocritical move when it had for years been fighting the banks and card schemes for doing exactly the same thing [See article here].

But what do we find the market (including Tesco Bank) is up to now? Where card issuers previously thought they needed to physically issue a different card to replace plain vanilla versions – in order to introduce the higher transaction fees – they have now found a better way to do this.
You pick a card and we’ll choose the fees.

They simply assign a different ‘classification’ to their existing cards so that when the cards are presented at a retailers’ checkout they accrue a higher transaction fee behind-the-scenes in the banking infrastructure (it’s too complicated to explain fully – honestly).

This is a short-cut to creaming off higher fees is a method that will undoubtedly be used by many card issuers now that this loop-hole in the card schemes’ rules has been spotted and eis being exploited.

The problem for retailers accepting these cards is that there is no way they can tell beforehand that they will inflict higher charges on them. But when they see their bank statements, which show that the charges on some cards have increased by 30-40%, they will see the full damage.

The worst hit will be small shop owners and those retailers that typically have a high percentage of sales derived from credit card customers. Robert Jarrett, director at BIRA (British Independent Retailers Association), told that in relative terms the extra charges on these ‘premium cards’ was hurting his small retailer members more than the large operators because they were less able to absorb the costs.

Although you can’t really blame card issuers for initiating opportunistic moves – aided and abetted by the card schemes (MasterCard in particular) – it again highlights just how toothless the OFT is in taking affirmative action on card fees.

Tesco has maybe missed a trick because it could have taken the initiative and made sure all its cards were the lowest rates in the market and shamed the others into doing the same. This would have enabled it to truly take advantage of its original stance of being the so-called ‘people’s bank’ and used this to fight the corner of retailers and consumers against the banks and card schemes.