The EU Payment Services Directive which bans card transaction charges is set to raise travel prices. Ian Taylor reports
A single paragraph of the EU Payment Services Directive II (PSD2), due to come into force next January, will have “a bigger impact” than the new Package Travel Directive, according to Noel Josephides.
The directive prohibits retailers from charging for “most consumer debit and credit cards”, including Visa and Mastercard. Agents and tour operators will have to absorb the charges from January 13, 2018. The only way to recoup the costs will be to increase prices or, in the case of agents, charge a booking fee. Either way, prices will rise.
Sunvil chairman Josephides, who chairs Abta, chose to speak strictly in his tour operator role when he said: “It’s the last thing we want. This is a bigger issue than the Package Travel Directive.”
The Association of Independent Tour Operators (Aito) described the impact as “2% straight off the bottom line”. Chairman Derek Moore said: “In the case of travel agencies, the current charge to the consumer of 2% is vital to their survival. Holiday costs will go up. There is no way of absorbing it.”
An Aito survey suggested the ban could cost members £11 million a year if all payments switch to credit cards because of the financial protection they offer.
Moore warned the cost of card transactions could also rise, saying: “The credit card industry is likely to perceive a higher risk with more travel business going their way.” He added: “It seems ridiculous the government should be encouraging people to buy on credit.”
Unavoidable cost
The directive prohibits “surcharging [on] most consumer debit and credit cards”. However, it excludes “three-party card schemes”, such as American Express, and “commercial” (company) cards.
Advantage Travel Partnership managing director Julia Lo Bue-Said said: “We spent years educating customers about the benefits of debit and credit cards. [Now] we have to explore other options.” She forecast: “More agents will use Bacs payments [automated payments between banks].” However, Josephides pointed out: “No matter what you do, there is a cost.”
Industry accountant Chris Photi of White Hart Associates said: “Prices will have to rise, or agents could replace the charge with a booking fee – but they would have to charge this on every booking.”
Companies that have taken card deposits on holidays with balances due next year don’t know whether they can legally charge a card fee on the final payment.
Photi said: “If you put a brochure out a year before travel and someone pays a deposit, you’re not sure whether you can charge for the card [on the balance].”
However, he said the industry had made money on credit cards in the past, adding: “Any firm charging more than 1.5% [on card transactions] is making money.”
Outdated thinking
Lo Bue-Said pointed out “costs vary by individual business” and Josephides said: “You never know the cost of a transaction when you take a card.”
Yet the rationale for the ban appears largely historical. A Treasury impact assessment notes “a relatively high surcharge rate and a high incidence of surcharging in the travel/hospitality sector” in 2012 and an estimate that UK airline consumers spent £300 million on payment surcharges in 2010.
It notes a sharp fall in charges since, stating: “The costs for handling debit and credit card transactions by retailers reduced by £159 million in 2015.”
It also accepts prices will rise and suggests the EU is guilty of “an overestimation of the benefits” of the ban.