Abolishing surcharges can’t come too soon

When credit cards were first issued in the UK in the late 1960’s they were seen by retailers as a boost to trade and a way out of their hire-purchase schemes with costly overheads, so they were happy to absorb the costs of card transactions. Shops that accepted credit cards were seen to have a commercial advantage over those that didn’t. It also improved mail order confidence. Not being a Barclays account holder I was not entitled to a credit card until the Access Card was introduced in around 1972. It arrived unsolicited as a sort of present from the Midland Bank with whom I had a current account. The Consumer Credit Act soon followed in 1974 in order to regulate the industry and it brought in the Section 75 default protection. In their early days, credit card payments were very much a manual operation requiring traders to take their payment slips into their bank for processing. Although payment processing for both traders and borrowers was heavily computerised it was much slower than modern systems [direct debits were slow to catch on and most customers settled by posted cheque or an over-the-counter payment using Bank Giro] and most back-office processes were paper-based. Despite enormous efficiency gains the fundamentals for the consumer haven’t changed much even though transaction volume and turnover have grown phenomonally so the costs of operating a credit card account remain significant. I would have expected the digital revolution and on-line transaction systems, together with the economies of scale, to have borne down on these costs and I agree with Malcolm – it would be very useful to have a breakdown of the costs and charges together with a justification in each case. We should not overlook the interest rates on deferred settlement which, in relation to base rates, are stratospheric; I expect they are profitable as well.

I would like to see new credit card holders required to set up a direct debit to pay off their card balances at the end of the free credit period. I suspect that this could save many customers from getting into the habit of living in debt and paying high monthly interest rates.

Thanks for the history, John. I had not realised I had obtained an Access card so soon after they were launched. I remember when the card was put onto a manual machine that transferred the embossed information onto a form with duplicate sheets, one of which was given to the customer. Chips and pins were from the fish shop and haberdashers down the street and security codes were something used on bike locks. There are still a few of the manual card machines in use.

If the travel company is having to pay the bank interchange fee of at least 1%, plus the merchant processing charge at whatever rate that is, you can see where the 2% comes from. As I wrote above, I think it is far too high but until the interchange fees are reduced this problem will remain. The travel industry does not endear itself to its customers but, still, we wouldn’t want to book a holiday with a firm operating on a knife edge. Credit card payments to the travel operator, though, are gilt-edged as they are real money in the bank with no risk of default or bad debts and for many holidays they are received some time before any payments are made to the airline and hotel.