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How to avoid credit card fees with Direct Debit

Samantha North
Written by

Last editedApr 20232 min read

Direct Debit could be the answer for businesses looking to avoid the increase in card processing fees after Visa removed its interchange cap earlier in September.

The change mainly affects garages, travel agents and other B2B businesses that accept customer payments by Visa debit card. Those merchants with Average Transaction Values (ATV) above £245 will be the most heavily affected.

This is not the first time Visa has made changes to its fee structure. In March 2015, the company changed its debit interchange rate from a fixed rate per transaction (8p for chip & pin) to an “ad-valorem” (% of transaction value) rate of 0.2% + 1p. This move created higher costs on all transactions above £35, particularly affecting merchants with higher value transactions.

But now that the new changes are in place, merchants are seeing significant increases in processing costs. For example, according to recent figures from CardSwitcher, a travel agent with a £500 – £1,000 transaction value would see their debit processing costs double or quadruple. A garage selling used cars at £5,000 – £10,000 would see their costs rocket by thousands of percent.

This is understandably a huge concern for merchants. So what can they do to mitigate the effect of these changes on their business? The folks at CardSwitcher advise the following -

  1. Find a new acquirer. They will all incur an uncapped cost of 0.2 %, but different acquirers will add different margins on top of this. It’s worth shopping around.

  2. Charge customers extra. This is understandably unpopular but it is becoming increasingly common, especially for credit card charges. At present, businesses are allowed to pass on their costs to the customer, but this may change in future as legislation brings in an outright ban on adding a surcharge to consumer debit and credit cards.

  3. Consider using another payment method. For affected businesses, the most logical response to this situation is probably to identify another payment method altogether - if your customers are happy to use them. Bank transfer is one idea, although this method lacks the chargeback protections that credit and debit cards benefit from.

For recurring payments, the tried and true method of Direct Debit is a top choice. According to recent survey results from YouGov, Direct Debit is the method that UK consumers feel most comfortable with.

With the rise of cutting-edge payment providers such as GoCardless, businesses can quickly and easily start using Direct Debit and get all their customers on board too. GoCardless helps merchants benefit from fully automated systems, real-time alerts and the ability to create flexible payment plans that precisely fit their customers’ individual needs.

Direct Debit offers an appealing alternative in these times of ever-increasing credit and debit card fees. By using GoCardless as your Direct Debit provider, your business can benefit from scalable transaction pricing between 2p and 60p, along with no set-up fees, hidden costs or minimum contract.

Over 85,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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Interested in automating the way you get paid? GoCardless can help
Interested in automating the way you get paid? GoCardless can help

Interested in automating the way you get paid? GoCardless can help

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