Today should bring good news for consumers as the Reserve Bank’s reforms to credit card surcharging come into effect. These reforms are designed to end the practice of retailers hitting consumers with excessive surcharges for paying by credit card – such as the $7.70 charged by Qantas and Virgin or the 10% Cabcharge imposes.
But what exactly is changing? From 18 March, Visa and MasterCard – the two credit card schemes regulated by the Reserve Bank – have had their regulations changed. This will allow Visa and MasterCard to limit the surcharges retailers are permitted to charge shoppers to the “reasonable cost of card acceptance”. While the changes relate specifically to Visa and MasterCard, the other credit card providers are expected to also introduce the reforms.
The RBA will be watching how the reforms work, however it will be up to the credit card providers to enforce the changes.
Generally speaking, credit card providers want the cost of using their product (the credit card surcharge) to be as low as possible so that consumers use it as much as possible. This means that the reforms should also be welcomed by Visa and MasterCard.
So far, so good. However, the detail is not so straightforward.
The RBA has stated that “it is the Bank's expectation that merchant service fees and other costs payable to acquirers will typically represent the bulk of the reasonable cost of card acceptance for merchants”.
This means that in most cases the surcharge will be the fees charged by the retailer’s bank – the Merchant Service Fee plus the other direct fees. However, the exact amount of these fees is a confidential agreement between a retailer and its bank, not between the retailer and Visa or MasterCard. This lack of transparency will make enforcement challenging.
Merchant services in Australia – the agreement retailers have with their bank to be able to receive credit and debit card payments – are complex and opaque. Each credit card provider will have around ten different fee categories relating to what type of retailer is involved – from charity through to large commercial. Then there are a separate set of fees based on the type of card that the consumer is using – with the “premium” cards like platinum attracting a much higher fee than the “no-frills” credit cards or any of the debit cards – and these fees may differ depending on whether the consumer is physically present or not (there is more fraud where cards are used over the phone or online). On top of that, the retailer’s bank charges a fee for providing the service. These fees combined make up the retailers Merchant Service Fee (MSF).
The actual amount of the Merchant Service Fee varies widely between retailers. Many small businesses have told us that they are offered (expensive) Merchant Services on a take it or leave it basis. In contrast, we have been told that large retailers are on ‘strategic’ rates which are a fraction of what smaller retailers pay.
While the data the RBA regularly publishes is an average of the fees retailers pay their banks to accept card payments, not the actual costs for a particular retailer, the data nonetheless is the only publically available guide for consumers of what is “reasonable”.
For a $100 purchase the average fee to process the payment is:
- $0.85 for Visa and MasterCard;
- $1.81 for American Express; and,
- $2.08 for Diners Club.
However Debit card transactions such as Eftpos are much cheaper to process – mostly because there are no costly reward programs or other added benefits to pay for. A $100 purchase with Eftpos would have fees of less than 10 cents.
Although many smaller retailers have “blended” merchant pricing - where their bank charges them the same fee for each transaction - retailers can ask their bank for a breakdown of how their fee has been calculated to make sure they are applying a fair surcharge.
It’s time for retailers to do the right thing by consumers and reign in excessive surcharges.
So if you see a surcharge you think is unfair, challenge the retailer to justify it. While the amount different retailers pay their banks vary, the commitment to only pass on what it costs to process the transaction shouldn’t.
We think consumers should take this message straight to the most prominent offenders and demand fair surcharges.
Now that would be a real consumer win.