Cashless trend potentially “devastating” for small businesses, warns FSB.

10/06/2019.

The chairman of the Federation of Small Businesses has warned that many UK businesses could suffer “devastating” losses if bank charges for cards are not restricted, as cashless transactions account for more and more sales.

The FSB head notes that business owners are already being forced to bear the significant costs of increasing bank charges amid the growth of contactless and card payments.

With the cashless trend set to continue, FSB head Mike Cherry warns: “There is a danger card and contactless payment fees will soar without competition” as cash transactions “disappear.”

1 in 10 consumers now largely cashless

Cashless transactions are on the rise in Britain, as innovations in financial technology transform the way consumers make purchases.

40% of all payments in the UK last year were made using debit cards, thanks in part to the rising popularity of contactless payments, whilst nearly 1 in 2 adults now use mobile banking.

The number of bank payments made using online or mobile banking totalled 2bn in 2018, up from 1.6bn in 2017, with mobile payment services such as Apple Pay and Google Pay attracting 8.5m customers.

Meanwhile, the number of cash points across the UK is falling, further pressurising businesses to offer card payments.

Data suggests that UK cash machines are disappearing at a rate of 300 a month, with figures from Which underline that more than 2,500 cash points shut in the last six months of 2018 alone. In addition, 3,000 bank branches have shut across the UK since 2015.

Against this backdrop, data from UK Finance indicates that one in 10 British adults are now largely cashless.

The trend is particularly pronounced among younger consumers, with 17% of 25-34 year olds making most or all of their transactions without cash.

Bank fees “erode” SME profit margins

As cashless transactions account for an increasingly high proportion of all sales, the FSB notes that a number of small businesses have complained that the pressure to install and maintain cashless technologies is “eroding” their profit margins.

Businesses are obliged to pay thousands a year to banks in order to rent card reading equipment, in addition to paying a percentage charge of 1.85% or more on every sale as a fee for card payment.

Alongside basic charges, many banks charge premium rates for processing sales above the basic rate, in addition to payment authorisation fees.

For small businesses, the impact of such costs can have a severe impact on profitability, combining with other factors including disruption from e-commerce, Brexit related uncertainty and rising tax and rent burdens to dent balance sheets and limit growth.

In a climate where the number of businesses registering for insolvency has reached its highest level in five years, a projected rise in card payment charges in the near future could ultimately prove too much of a burden for small firms simply struggling to stay afloat.

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