Retailers should not shoulder commission on cards

Banks in Malta charge retailers – including family businesses with a small number of employees – a commission whenever they accept payments by card. These small businesses are the efficient private sector motor of the Maltese economy.

The bank should shoulder the charge as it is the net beneficiary- Peter Pace O’Shea

Whenever a customer decides to pay by debit or credit card, the retailer knows that a bank commission of between 1.7 per cent and two per cent on local debit cards and an even higher percentage on credit cards is immediately taken away from the profit margin. The reality is that the percentage is even higher as the commission is levied on the selling price, which is inclusive of VAT. In all fairness, the consumer should not pay the commission either.

The commission is not paid by the person making use of the facility but by the business that provides the service. If the banks imposed the commission on the consumer, it would be a deterrent to the use of cards. This is akin to visiting the hairdresser’s and demanding to be paid, rather than pay, for the service.

Banks create deposit money and they can only do so if their cash base is healthy and growing. With the use of plastic, banks ensure that no leakages of cash will occur from the banking system while business transactions are taking place every day. The money is transferred electronically from one bank account to another.

Overall transactions between banks cancel each other out and the final result is that the more people get accustomed to using plastic money, the more the cash base of all retail banks grows, so they can lend more. That’s not to mention the money multiplier effect.

Retailers give the banks a service by making it possible for them to employ staff to clear cheques. In turn, the banks charge retailers a commission for helping them cut their costs.

About two years ago, HSBC sent a circular to all shareholders that dividends would be paid by direct credit as a cost-cutting exercise. HSBC recently shut some branches and relied on ATMS in those locations. The banks are aware electronic transactions cut costs – but they only apply it as long as it benefits them.

Now that the banks have a better cash base, thanks to the co-operation of retailers, small business owners turn to them to borrow or request an overdraft – and are charged all sorts of administrative fees, plus high interest rates.

The GRTU should be at the forefront in defending small businesses. So should the Department of Consumer Affairs. Is it fair that banks charge a commission to the wrong party in a transaction?

The bank should shoulder the charge as it is the net beneficiary.

If the GRTU were really a retailers’ and traders’ union, it would stand up and protect small businesses which also pay it an annual fee to do so. It should instruct all retailers to refuse to accept cards till the banks stop this incorrect practice.

Who will protect and stimulate the motor of the Maltese economy? Ordinary people who take risks, work unbelievably long hours, employ people, and, through the positive income multiplier effect, generate growth in the country’s GDP?

Mr Pace O’Shea is a freelance accountant specialising in small business and a teacher in accounting and economics. He is to publish an Accounting ‘O’ Level textbook at the end of the year.