“Understanding your Customer”
UK retail issues in the payments
arena
London, 2 July 2008

About us
• BRC: Lead trade representation for UK retail:
70% of the sector by market share
• UK retail’s economic contribution (2004/05)
– Corporation taxes:£2.27 billion
– VAT collection: £4.88 billion
– Business rates: £5 billion
• Key driver of growth and prosperity
– Generates 6% of UK GDP
– 1 in 9 employees
– 1996 - 2006: Shop price rise- 7%
RPI rise - 29%

Our broad policy concerns
• Government understands the sector and
our customers’ needs
– Consumer confidence waning
– Competition has never been higher, margins
never been thinner
• Regulatory environment that favours
innovation and rewards responsibility

Our specific policy concerns
• Climate Change and Sustainability
• Global Trade
• Public Health
• The Cost of Payments
• The Regulatory Burden

The customer
• A balanced relationship
• Help them understand complexity
• Empowered and informed to make the right
decisions
• The customer will always be King

Is the retailer – banker a two way
relationship?
• Issues around transparency
– Setting of card fees and their use
• Not entirely balanced
– Unable to negotiate; confidentiality clauses
• Efforts to inform are poor
– PCI DSS roll out; new debit products
• No attempt to empower
– Honour All Cards

Interchange Fee
• Strongly welcomed EU Decision on
MasterCard in 2007
• Interchange should continue to exist at a
significantly REDUCED LEVEL
• It should be cost based and transparent
• NO ad valorem payments – a fixed fee per
transaction
• Retailer benefits passed on to consumers

PCI DSS
• Issues of concern:
– Uncertainty: over implementation and
technical feasibility
– Disruption and cost: IT plans already in place
– Poor management: no central coordination
• What retailers need:
– Clear definition of what needs to be done next
– One Standard for all card schemes
– Clear dates and realistic timescales

New Debit Products
• HSBC Maestro – Visa Debit changeover
• Issues of concern:
– Fear further rising costs and charges (£25m+)
– Not clear on benefits to retail
• What retailers want:
– A transparent and value added service
– Fixed price per transaction
– Will oppose any ad valorum element as a sector

Cost of Collection Survey 2007
• If you allowed an average retailer to
choose payment method….IT WOULD BE
CASH

Key Findings 2007
% of Total transactions by Volume
Charge Cards
1%
Debit Cards
27%
Credit Cards
11% Cash
60.5%
Cheques
0.5%
Cash is still the most popular method of
payment with UK customers

Total Costs of Collection by type
Cheque Guarantor
Cash In Transit 0.5%
6.5%
Fraud/Bad Debt Bank Charges 2.5%
11%
Merchant Service Charges
79.5%

Cost of Collection as % of Tender Turnover
By Value in 2007
Cost of Collection as a % of
% of total turnover
tender turnover
Cash 34 0.18
Debit Cards 43 0.25
Credit Cards 21 0.92
Cheques 1 1.20
Charge Cards 1 1.45

Cost of Collection per Transaction
Payment Cost per transaction Average
Method (pence) Transaction Value
Cash 1.97 £11.02
Debit cards 7.88 £31.05
Credit Cards 34.71 £37.71
Cheques 53.03 £44.30
Charge Cards 52.41 £36.14

Our view
• Cash is still King
• Any move to replace cash must take
very low costs into account
• Ensure that progress and use of
technology brings balanced benefits
to – retailers, consumers and banks