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'Tap-and-go' debit and credit cards are likely to load little everyday purchases with significant fees. Surely convenience shouldn't have to cost a fortune?
May 16 2007

"Tap-and-go eMoney cards are expected to start to replace cash for small purchases under £10, but solutions from debit and credit card networks are likely to load small transactions with significant fees; which the consumer will probably have to pay for", says Adam Smith, CEO of sQuidcard, a new alternative network that is to launch a low cost 'Tap-and-go' eMoney card in the North West this Autumn, with further trial sites within the M25.

sQuidcard agrees that contactless debit and credit card payments will increase convenience and reduce queues for consumers and retailers alike, so that buying a newspaper, a cup of coffee or a sandwich will take just a few seconds. But sQuidcard warns that the price to be paid for this convenience probably won't be transparent and might be outrageous.

If the credit card companies and banks, already under pressure over allegations of anticompetitive practices and overcharging, apply their standard transaction fees to the UK's £200bn a year sub-£10 cash market, sQuidcard believes this is likely to drive up prices for the consumer and, thereby, fuel inflation.

"What the credit card companies and banks don't tell you" says Smith "is how much they will charge retailers for these contactless transactions. At the moment it appears they intend to charge similar fees to those that apply to credit and debit card transactions, which are in our opinion far, far too high for buying the little things in life."

sQuidcard estimates that an average debit card transaction fee is about 18p, so buying a £1 newspaper may incur a debit card fee of 18p, which someone has to pay for. Contactless credit card charges could be even higher, due to the layers and layers of fees and commissions built-in to the credit card system, plus potentially onerous interest on any outstanding balances.

"There is an alternative" adds Smith "sQuid will be the cheapest way to spend a quid".

By comparison, sQuidcard's "never more than 1.5%" fee would mean a 1.5p fee on the same £1 transaction, which in many instances may be lower than the cost of the retailer handling cash. sQuidcard is able to deliver all the benefits of 'Tap-and-go' cheaply because it is implementing an alternative network designed specifically for low cost payments, based on secure but cost-effective internet technologies, not dissimilar to that of London's Oyster, with no layering of fees or interest charges.

Smith believes sQuidcard can gain preference by highlighting the implications of using costly networks for small purchases. "The credit card companies and banks pretty much control most transactions in the UK over £10. Now they are looking to profit from day-to-day cash purchases, too. This will no doubt increase the banks' and credit card companies' profits, but will also probably increase prices for you and me".

sQuid will be announcing the launch of its low-cost alternative eMoney network during June, with a national roll-out planned in 2008/9.