01.No more excessive surcharges
The Reserve Bank has announced today the current Payment Systems Standard will be varied to limit the amount businesses can charge customers for credit card surcharges.
Since 2003, businesses have been free to set their own surcharges to recoup the cost of processing credit card transactions.
A six month inquiry by the Reserve Bank found increasing evidence to suggest it is becoming more common for businesses to set surcharges at levels that far exceeded the average merchant service fees.
Banking research firm East & Partners found in December 2010 large businesses charge an average surcharge of 2.4%, despite the average merchant service fee coming in around 1.4%. It was found small businesses charge an average of 2.6%, despite their average merchant service fee coming in around 1.7%.
The same study found the average merchant service fee is about 0.8% for MasterCard, 0.9% for Visa and 1.9% for American Express.
Under the proposed new standard, businesses will only be able to pass on the reasonable cost of acceptance to customers.
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The decision to amend the no-surcharge Standard was made to put a stop to what the Board described today as ‘excessive’ surcharging and an increase in ‘blended’ schemes that have the potential to overcharge customers using lower-cost credit cards, particularly Visa and MasterCard.
The new scheme – designed with the public interest in mind – will allow regulatory authorities to address cases where businesses are clearly charging more than is justified for card acceptance.
MasterCard announced this afternoon they welcome the change to place sensible limits on the increasingly prevalent practice of card surcharging.
The Board will accept formal written submissions on the proposed variations until February 2012.
Based on submissions made to the inquiry, the Reserve Bank found market forces were failing to regulate a number of industries, particularly airlines and taxis, due to minimal competition.
At present, Qantas charges a $7.70 credit card surcharge per passenger, per ticket for domestic and Tasman flights. For an international flight, this surcharge leaps to $30, although processing costs remain roughly the same.
Paying the $30 surcharge on a $1,000 flight from Sydney to Bangkok works out at 3%. If you pay with a Visa or MasterCard, it is likely the merchant service fee would pay less than $9.
Qantas told CHOICE they believe their approach to surcharging is straightforward and transparent.
Virgin charge customers $4.50 per flight, per person. A family of four can make a single payment booking to fly return from Sydney to Hamilton Island and be hit with a credit card surcharge of $36.
Jetstar are no exception to the rule, imposing a $7.50 surcharge for domestic or short-haul international flights and $10 on long-haul international flights.
While consumers will continue to cover the extra cost of processing the credit card transaction, the practice of profiteering though disproportionate surcharging will be stamped out.
Consumers can expect to notice the biggest savings when purchasing flights and paying for taxis on their credit cards. Westfield Online and eBay both already have a no credit card surcharge policy, as do most retail outlets.
Under the new scheme, a reasonable surcharge may be determined with reference to the cost to the business of the particular card transaction or the average cost of processing a transaction based on the acceptance of all credit cards. This may result in a surcharge that varies for different card types or a single surcharge rate for all cards and may be applied on a case- by- case basis or as a flat fee. The business imposing the surcharge will have the final decision here, although they must be able to justify their fee as ‘reasonable’.
CHOICE welcomes the announcement from the RBA, a decision that recognises credit card surcharges should not be used as a hidden revenue streams for merchants.
It will be crucial that the changes are monitored and enforced and that serial surchargers such as airlines and taxis are reined in.
CHOICE head of campaigns, Matt Levey, says “today’s decision from the RBA will mean no more cream on top of transaction costs for those excessively surcharging, ensuring consumers no longer have to pay extra just for the privilege of paying”.