PayPoint under fire as retailers say enough is enough

PayPoint sign

A war of words has broken out between PayPoint, the NFRN and a number of retailers over the commission paid out by the services company. With retailers threatening to switch off terminals and PayPoint defending the benefits of its system, SLR takes a look beneath the surface.

by Kevin Scott

It was all innocuous enough to begin with: Santander raised the fees it charged for processing payments. A frustration for retailers, but when PayPoint then reduced the cap on commissions from 13p to 10p for general bill payments, retailers began reaching for the calculator and seeing the havoc this would wreak on the already low margins they make on processing payments.

In a matter of days a fight erupted, with the NFRN demanding Ofgem investigate PayPoint, retailers turning off terminals in protest and PayPoint suspending a number of accounts after discovering some retailers were issuing customers with a surcharge for using PayPoint. The issue over Santander charges increasingly fell into the background, with the NFRN launching into a campaign against PayPoint that, while understandable, has at times been antagonistic.

Premier retailer and President of NFRN Scotland, Mo Razzaq issued a public letter claiming that from the £36,000 of business he does from PayPoint, he makes £140 per month commission, which equates to around 0.36%. By the time bank fees, staff costs and other expenses are taken into account, Mo claims he is left with a monthly loss of £152 per month from operating PayPoint, although PayPoint questioned every aspect of Mo’s letter.

NFRN Chief Executive Paul Baxter says: “With commission caps set to fall to as little as 7p and with the national minimum wage set to rise later this year, the money retailers make from PayPoint and so called extra sales will not even cover the salary of any employees, let along the owner’s costs and profits.”

He called on PayPoint to ‘Pay Fair’, saying: “How PayPoint can now justify the significant cuts on commission caps from 18th May in the face of this data and following the strong reaction from retailers is beyond me.”

Ofgem investigation?

The NFRN then took things further by requesting Ofgem investigate the matter, calling the situation “invidious”. Baxter said that by this point the NFRN believed that all retailers with PayPoint terminals would be assessing the commercial viability of maintaining the service. “Inevitably, unless action is taken to redress this erosion of commission, many retailers will be deciding whether it is preferable to pay the early termination charge and rid themselves of this loss making service, and, many more retailers are now likely to be deterred from becoming a PayPoint retailer in the future,” he said. “The NFRN urges Ofgem to urgently investigate this matter before consumer detriment becomes irreversible.”

The #PayPointPayFair hashtag was adopted by retailers on Twitter, and frustrations were subsequently vented, MPs were contacted and plans were made to switch off terminals in protest, with English retailer Marcus Bergin becoming a de facto leader of the campaign.

The situation seemed to boil over on 14th May when it was revealed that UK Managing Director Seamus Smith was to leave PayPoint to take a position with a FTSE 100 company, and Retail Director Andrew Goddard was also to leave at a future date – though the company denied either was linked to the furore.

The big switch off

On 15th May a number of retailers across the UK did switch off their terminals in protest. Mo Razzaq, however, was not among them, saying that customers should not be the ones to suffer and he preferred to ‘embarrass PayPoint’ by displaying posters that ‘explained the situation’.

By 20th May and taking the view that open letters have a strong impact in modern day communities, PayPoint issued one of its own in which it recognised that the dispute had become increasingly bitter.

In the letter, PayPoint said that having listened to numerous retailers in recent weeks, the company would like to clarify a few things for “all PayPoint stores that deliver a vital service to consumers across 28,000 locations in the UK.”

The company set out a number of points, stating that it pays the same commission rates to independents as it does to large retailers, such as Asda, Sainsbury’s and Tesco, and pays over £60m to retailer partners each year; that 75% of transactions are unaffected by the recent changes to commission; that the new 7p cap for certain transactions is higher than the caps used by PayPoint competitors, and is set above the average transaction value across its network. It also highlighted that a preferential cash banking deal with Barclays remains available for all retailers.

The letter added: “We are committed to improving how we do business with you, and continue to invest significant amounts in technology and support teams. We welcome the opportunity to talk to our retailers and our field teams are happy to meet and discuss with you any questions you may have.”

Still with the company, Goddard spoke to SLR about the situation. He says: “The commission changes were not something we wanted to do but there is a commercial reality that we are having to deal with.”

He says the company is listening to the views being expressed by retailers on social media but firmly believes that the best way to deal with this is by having conversations face to face with the retailers concerned. “We’ve been actively doing that over the past few weeks and have found our retailers to be very receptive to this approach, including some of the key voices on social media like Marcus Bergin in Gloucester.”

The retailer view

One retailer that PayPoint has met with is John McGowan from Icon Stores, who has four shops in Aberdeenshire. In a letter sent to SLR, John ran a cost benefit analysis of retaining his PayPoint service and demanded action. He says: “We do a seven figure turnover in PayPoint but our commission is negligible. Some transactions we actually make a loss on by the time banking charges are applied. It’s not fair.”

John does admit that PayPoint is a crucial service for the shop, but believes that something has to change. “They are relying on other products to make their own service profitable for retailers. It doesn’t make sense.”

Colin Smith, a former Best-one regional manager who now owns Pinkie Mains Convenience Store in Musselburgh says that he isn’t happy with the cuts but wouldn’t consider switching off his terminal. “What needs to be remembered is that we’re a community store and we’re here to provide for that community. Some of our customers rely on prepaid gas and electricity cards to power and heat their homes”, he says.

Colin says that his PayPoint turnover is high and he makes practically no money from it. “I see it as a service that brings customers into the shop, and it does, but that doesn’t mean I want to run it at a loss. It’s just another example of where retailers are being squeezed. I want to speak to PayPoint about what other services I can add, so if I’m not making money from gas and electricity, I can sell vouchers, gift cards and so on that have a better return.”

Linda Williams of Broadway Convenience Store in Edinburgh has much the same view: “I see PayPoint as a service that we just have to have, but they’ve had it their own way for too long,” she says. “I would never turn off my terminal, but in principle these retailers have a point – PayPoint seems to do what it likes and they keep making money while cutting commission paid to retailers. It cannot continue where local retailers face costs for running a service; it’s not sustainable.”

The message from PayPoint is to ensure that if you have an issue with the company, you don’t take it out on your customers. Goddard says: “The important thing here is that customers do not suffer and we think this is one area we can all agree on. We do not want any retailer to turn off their terminal in protest.”

If any retailer does have issues with the new rates, then Goddard urges them to engage directly via PayPoint’s contact centre on 0845 600 300 and the company will arrange a visit by their local Territory Development Manager.

For its part, the Scottish Grocers’ Federation (SGF) moved quickly to confirm it was actively working with PayPoint to devise a range of discounted services for SGF members, including preferential banking arrangements. The two organisations are in discussions with a number of banks.

SGF deal?

Pete Cheema, Chief Executive of the SGF, comments: “The SGF already offers its members a number of excellent deals that help to reduce their costs and add value to their businesses. PayPoint has always taken a very similar approach to providing support services to assist retailers in its network, such as its special account with Barclays, so it is a natural move to work closely together to develop further deals and discounts for retailers.”

Cheema adds that PayPoint is one of a range of vital services independent retailers offer to local communities, adding: “I am hoping to finalise a package of services for SGF members, both with PayPoint and one of the banks, in the very near future.”

There are many benefits to having PayPoint in store; that has never been in question. As Goddard points out: “There is an ever-expanding range of brands and services to complement our core bill and general payment services (including digital content, energy cash out and major transport schemes), continued investment in technology and retail services to our retailers (ATM, debit/credit & contactless payments, Collect+, and Western Union) and a real commitment to helping them maximise the footfall opportunity.”

PayPoint delivers in excess of 600 million customer transactions every year into convenience retailing and Goddard says its goal is to continue to deliver the best payment services proposition in the UK convenience sector.

He points to him!’s CTP 2015 survey, which says that the value of PayPoint customers comes from more than 4.6 visits per week (25% higher than non-PayPoint customers) and an average of £7.66 per visit – figures that Linda Williams for one questions, saying they’re not that high in her own store. Goddard says: “The value for PayPoint retailers is to maximise the opportunity to sell products and provide other services to compliment and maximise the value of these customers and visit to their stores.”

While this is good advice, it is simply unfair for retailers to be expected to run a service without profit, while the operator of the service posts multi-million pound profits. Being a footfall driver is a definite bonus but if a newspaper publisher or soft drinks supplier was to continually cut the margin given to retailers and explain it away by pointing out that newspapers and soft drinks are footfall drivers and money would be made on other purchase made alongside them, it simply wouldn’t be accepted, and that is why this recent cap has created the storm PayPoint finds itself in. On the other side, it does retailers no good to effectively punish customers in an attempt to make a point to PayPoint – by switching off terminals or charging a surcharge, there’s a risk those customers will take their business elsewhere, permanently. Of course, should a retailer wish to end their contract then they’re perfectly within their rights to discuss that with PayPoint, but simply tearing it up isn’t a feasible option – it is a contract after all.

In summary, all sides need to work together to find a solution that allows retailers to provide excellent services for a profit that makes it worth their while.