A barrier to the transcendence of cashless payments will be removed with excessive credit card surcharges targeted by new legislation anticipated to be implemented by mid next year.

While the more popular credit cards charge merchants between 1-2 % in transaction costs, premium and business cards, and cards associated with higher cost operations like premium reward programs, can charge 2-3%, and in rare cases up to 10%.

The detail of the new legislation is still being worked on, and the Payments System Board (PSB) will have input into determining what constitutes excessive customer surcharges.

On December 3 the PSB announced a consultation period to review a drafted framework.  The key areas include:
  • Card schemes will not be permitted to make rules that prevent merchants from recovering part or all of the costs of accepting card payments.
  • However, card acceptance costs will be defined more narrowly than in the Bank's current guidance note, as the merchant service fee and other fees paid to the merchant's bank (or other payment service provider).
  • Statements provided by banks to merchants will be required to contain easy-to-understand information on the average cost of acceptance for each payment method, which will constitute the maximum permissible surcharge if the merchant chooses to surcharge.
  • These statements will express acceptance costs in percentage terms, except where a merchant's cost of acceptance for a particular payment method is fixed across all transaction values. This should ensure that merchants – including in the airline industry – who wish to surcharge will typically do so in percentage terms rather than as a fixed dollar amount.

Fair dinkum test rolled out

In typical Australian political speak Federal Treasurer, Scott Morrison, said merchant fees would “have to pass the fair dinkum test – it has to be about the fair dinkum cost of what someone is actually absorbing and passing on”, he told media when announcing the proposed legislation in late October.

Merchants were given the right to pass on transaction costs to consumers in 2003, when the “no surcharge” rules were revoked to stop effective subsidisation of high cost payment methods.

That was followed by regulation introduced by the Reserve Bank of Australia in October 2013 that was aimed at limiting the amount merchants can charge when processing a credit or debit card payment.

New legislation adds teeth

In implementing the changes in 2013 the RBA released data showing that since scrapping the no surcharge rule, merchant fees on each card transaction had fallen from 1.4% to 0.8% in the Visa and MasterCard systems.

For Diners and American Express the fall was from 2.4% to an average of 1.8%.

Domestic airlines and taxi cabs have long been singled out as two of the worst abusers of customer gouging, with some airlines having a policy of no credit card fees, but passing on those costs in high booking fees.

In January last year the Victorian government slashed Cabcharge’s credit card fee from 10% to 5%, although that was followed in May by an across the board hike in taxi fares by the Taxi Services Commission.

Such additional costs have a real impact not just on the transition to a more efficient cashless society, but also on the public’s acceptance of alternative payment methods.

Cut costs or lose customers

A study by the RBA in 2010 found half of all consumers would use a different payment method like cash or a debit card to avoid transactions costs.

While the 2013 changes were squarely aimed at providing consumer protection, the lack of a watch dog with legislative teeth effectively maintained the business community’s ability to self-regulate merchant fees, while putting the onus on credit card providers to stop over charging by merchants.

Under Prime Minister Malcolm Turnbull’s proposed new legislation the ACCC will have responsibility for enforcing surcharge regulations, and more attention will focus on removing cost out of the payment system and improving efficiency, to further reduce merchant costs.

Currently a merchant faces credit card merchant fees, on charge scheme fees, participation fees, interchange fees, terminal access fees, installation fees, establishment fees, authorisation fees, chargeback fees and a minimum merchant service fee.
This article represents the views and opinions of the author and do not necessarily reflect the opinions of BPAY.
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