US card schemes are the big winners in RBA's card fee plan - at the expense of Aussie businesses and consumers
Independent Payments Forum
The Reserve Bank of Australia (RBA) is propping up profits made by US credit card schemes at the expense of small businesses and consumers by failing to regulate almost $2 billion they charge in fees each year, the Independent Payments Forum (IPF) said today.
Scheme fees charged by card schemes, including US payments behemoths Visa, Mastercard, make up a significant proportion of the merchant service fees paid by businesses like community pharmacies, newsagents and cafes to enable card payments.
These fees, which the RBA estimate to amount to $1.8 billion (net after rebates) a year, are currently not subject to caps.
Scheme fees are charged by all card schemes including Visa, Mastercard and Australia’s debit card network, eftpos.
It is estimated that eftpos scheme fees are a little over $100 million, while the dominant players Visa and Mastercard make up the bulk of the remainder.
Whilst the RBA has suggested they will lower interchange fees charged by banks which make up a part of the merchant service fees, they have only flagged ‘transparency’ when it comes to scheme fees, which remain unregulated in Australia.
Meanwhile, the US schemes have inserted themselves into public debate advocating for a ban on surcharging and keeping the interchange fees that they set for banks high.
“The international card schemes enjoy profit margins in excess of 50% and make billions from card transactions every year in Australia without having to worry about their costly fees being regulated,” said IPF co-founder, Brad Kelly. “Meanwhile, Aussie small businesses, like cafés, exist on margins of 3-4%. These scheme fees are charged as a percentage of their sales, eliminating a significant chunk of a small business’ profit.”
“There is no doubt they are the biggest winners in the RBA’s light touch regulatory model, at the expense of small businesses and their customers.
“While are they getting a free ride on the back of Australian businesses and consumers? What is the RBA afraid of?”
Currently small businesses in Australia pay an average of four times higher fees to accept card payments than big businesses, according to the RBA.
After the Reserve Bank’s consultation paper on their review of Merchant card fees and surcharging was released, and with the appearance of Governor Michele Bullock at the Standing Committee on Economics, one thing has become clear: the RBA has no intention of regulating the amount Visa and Mastercard charge in scheme fees.
Westpac in their submission to the RBA’s review pointed out that the lowering of interchange in the UK had no impact on the merchant service fees paid by small businesses.
The Payment System Regulator in the UK completed a market review of card scheme and processing fees in March of this year, concluding that: “Mastercard and Visa increased their core scheme and processing fees to acquirers by at least 25% since 2017, costing businesses at least £170million extra per year.”
Mr Kelly says that the UK should serve as a warning to Australia. “The UK example shows that without regulation, these large international schemes will continue raise prices to the detriment of small businesses, which make up 97% of businesses in Australia.”
Many small businesses in Australia remain concerned about the continued rise in merchant service fees and the impact of a ban on surcharging.
Ben Kearney, CEO of the Australian Lottery and Newsagents Association, says he is disappointed that the RBA hasn’t offered tangible solutions to the high costs of payments faced by small businesses.
“Small businesses, like newsagents, can’t access the low strategic rates that are offered to Australia’s bigger retailers. Newsagencies are subject to fixed, or regulated, pricing on many of the items we sell, so when fees remain high and surcharges are banned, we have no choice but to absorb these costs, and many in the industry will suffer terribly as their margins shrink.”
Brad Kelly says that at the very least the RBA should put the international schemes into a position where they need to compete on pricing. “At a minimum the RBA could mandate dynamic least-cost routing, which would put pressure on the schemes to lower their pricing in order to win payments transactions.”
The consultation process is continuing with the RBA expected to publish their conclusions and an implementation timeline by the end of the year.
About us:
About Independent Payments Forum:
Independent Payments Forum Australia (IPF) was formed in 2023 by a group of payments professionals who are passionate about providing an alternative view on the health and wellbeing of the Australian payments system.
Our small business participants alone represent more than 120,000 retail shop fronts, newsagents, community pharmacies, restaurants, cafes, pubs, clubs, service stations, convenience stores, gift shops, independent cinemas, supermarkets, hardware stores and liquor outlets across Australia. We also represent some smaller industry participants and fintechs, and we are proactively engaged with many others in the payments ecosystem to canvas their views.
Contact details:
Warwick Ponder: 0408 410 593, [email protected]
Brad Kelly: 0411 816 150, [email protected]
