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EU Legislation Pressures Small Firms to Absorb Card Fees

EU Legislation Pressures Small Firms to Absorb Card Fees

Small businesses are now confronted with absorbing credit and debit card fees due to new EU rules.

This change is part of the revised Payment Services Directive (PSD2), impacting financial operations and business strategies.

Impact on Small Businesses

The revised Payment Services Directive (PSD2) has prompted significant concern among small businesses across Europe. By prohibiting surcharges on credit and debit card transactions, the regulation shifts the financial burden onto business owners, who are already experiencing heightened operating costs. This regulatory change arrives at a time when the cost of doing business is reportedly at a five-year high, according to industry reports.

HMRC’s Role and Policy Changes

Her Majesty’s Revenue and Customs (HMRC) has announced a cessation in accepting payments via personal credit cards, citing the high costs involved in processing these transactions. This is in contrast to their continued acceptance of corporate credit card payments, which still include surcharges. Many industry leaders see this as an inconsistency and argue the decision exacerbates the challenges faced by small businesses.

The Federation of Small Businesses (FSB) highlights the disparity in how HMRC addresses credit card payments, and suggests this decision adds to the financial pressures on small firms. There is a call for government bodies and businesses to collaborate on reducing the transaction fees imposed by card companies.

Open Banking Initiative

The PSD2 is not solely about removing surcharges; it heralds new opportunities through the open banking initiative. This initiative allows approved third parties, including financial entities and accountants, to access transaction details from current accounts, potentially transforming small business operations.

The FSB’s National Chairman, Mike Cherry, expresses optimism that open banking could inject new competition into various sectors and improve financial access for small firms. By enabling direct access to pertinent financial information, businesses may receive suitably tailored financial services that better meet their needs. Open banking may also facilitate instant price comparisons, similar to those available to consumers.

Benefits for Accounting and Financial Management

Open banking holds the promise of revolutionising accounting processes. For VAT-registered small enterprises engaged in quarterly online returns, the capability to seamlessly transfer transaction details into accounting software could be transformational.

This development could streamline financial management by reducing manual data entry and minimising errors. The potential for real-time financial analysis and improved cash flow monitoring offers an exciting prospect for small businesses striving for efficiency.

Security Considerations

Despite its benefits, open banking raises critical security considerations. Businesses must exercise due diligence in selecting third parties to access their financial information. Each entity should possess the necessary approvals from the Financial Conduct Authority (FCA) to ensure data protection.

The emphasis is on small businesses to not only embrace the technological advancements but also to prioritise cybersecurity measures. Ensuring the security of transaction information is paramount to prevent data breaches and safeguard business interests.

The Future of Payment Systems

These legislative changes suggest a shift towards more digital and integrated payment systems. Small businesses may need to adapt their payment processing methods to align with new regulatory requirements and technological advancements.

Such evolution in payment systems proposes both challenges and opportunities, necessitating businesses to be forward-thinking in their adaptation strategies. Embracing these changes can unlock efficiency gains and better customer experiences.

Conclusion

In light of new EU legislation, small businesses face fresh challenges and opportunities. While absorbing card fees adds pressure, the promise of open banking offers potential relief and innovation.

Businesses must navigate these changes carefully, utilising the benefits while safeguarding their financial operations.


As EU financial regulations evolve, small firms must adapt to maintain competitiveness. Both challenges and new opportunities lie ahead.

By embracing open banking while managing costs, businesses can position themselves for long-term success.

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