Credit cards fees reduction will benefit consumers - but cause problems for retailers

RESERVE Bank moves to officially limit the amounts retailers can charge customers for processing credit cards pose a problem until banks – the owners of the credit card brands – reduce their own impost on retailers.

Tyro Payments CEO Jost Stollmann said the changes – which were announced on March 18 and aimed at bringing down allowable credit card surcharges from as much as 4 percent to 1 percent – would benefit consumers, but the major banks had a responsibility to help bring down costs for struggling retailers.

“If excessive surcharging on all credit and debit card transactions was removed it would save the Australian consumer an estimated $350 million a year,” Mr Stollmann said.

“Often consumers are charged nothing to use their credit cards, but in many cases they do have to pay a fee, for petrol, clothing and food. It can be for anything.

“The major banks impose unnecessary costs on small retailers, who then pass the costs onto consumers.

“Banks are making record profits, while retailers are struggling to survive. Banks need to lower their ‘interbank’ fees, which will give retailers the capacity to lower credit card fees for consumers,” he said.

From March 18, the Reserve Bank of Australia (RBA) issued a guidance note on new Standards that give credit card companies the power to force retailers to limit what they can charge consumers to use credit and debit cards.

Mr Stollmann said the ramifications could be huge as Australians spent $440 billion on credit, debit and charge card transactions last year.

 

This included $208 billion on Visa and MasterCard credit cards, $130 billion on eftpos cards, $54 billion on AMEX and Diners Club charge cards and $49 billion on Visa and MasterCard debit cards.

American Express and Diners Club card transactions attract surcharges of 3-4 percent, while 36 percent of all retailers levy a surcharge on credit card purchases, according to the RBA’s Review of Card Surcharging: A Consultation Document, published in June 2011.

The use of surcharging has grown dramatically in recent years, Mr Stollmann said, and is most popular with large retailers who wield strong market power. The RBA first allowed credit card surcharging from 2003 to ensure customers who paid in cash did not subsidise those who used credit cards, which require costly technology.

Mr Stollmann said today 44 percent of large retailers charge customers to use credit cards, compared with only 23 percent of small businesses. This is thought to be because small business has a closer and more interdependent relationship with its customer base.

In December 2010, the average surcharge paid by consumers for Diners Club was 4%, for American Express 2.9%, for Visa 1.9% and for MasterCard 1.8%, according to RBA research.

In taxis, customers are forced to pay 10% when paying for their trip with a credit card. The RBA is currently considering whether to regulate the Cabcharge system as it does the Visa, MasterCard and eftpos payment schemes.This would open up the Cabcharge system to competition for the first time in 36 years.

Mr Stollmann said Australians spent an estimated $4.6 billion on cabs in 2011 from 209 million separate journeys, according to Australian transport industry statistics.

“It is a scandal how Cabcharge is allowed to continue to stifle competition and gouge the Australian consumer,” Mr Stollmann said. “Customers pay 10% in a cab every time they use a credit, debit or Cabcharge card, yet only pay between zero and four percent in a shop.

“The payment system in cabs is more expensive than in a retail store, but there is no justification for the 10% if the market was open to competition. Every man, woman and child in Australia takes more than 15 taxi journeys a year on average, so the stakes are high.”

The 10% taxi surcharge contributed $90 million of revenue to Cabcharge in the 2012 financial year, charged on $1.05 billion in taxi payment turnover.

Mr Stollmann said the momentum to provide customers with a better deal was growing.“Every man, woman and child in Australia takes more than 15 taxi journeys a year on average, so the stakes are high.”

Mr Stollmann lamented the inequalities that bedevil Australia’s payment systems. He said Tyro was the first new entrant into the EFTPOS business in more than 14 years, and is independent of the brand ‘eftpos’, which is majority owned by the major banks.

He pointed out that a major anomaly was that Cabcharge is not registered with APRA, holds no financial services licence or credit licence with ASIC and is not governed by the RBA, yet the proprietary Cabcharge payment system processed $438 million in fares 2012 financial year.

www.rba.gov.au

www.tyro.com

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