03.What retailers pay vs what you pay
In 2003, new regulations from the Reserve Bank of Australia (RBA) enabled retailers to introduce surcharges for customers paying with credit and debit cards
. This followed reforms to the payments system that disallowed the card schemes’ “no-surcharge rule” and caused a reduction behind the scenes in fees paid by merchants for credit card transactions. By 2006, just 7% of merchants were surcharging. But the rate has since increased dramatically, with the percentage of companies surcharging
in June this year having risen to between 20% for small merchants and 40% for large merchants.
American Express (Amex) transactions generally attract the highest surcharges. The average surcharge for Amex and Diner’s Club transactions is 2.7%, compared with 1.7% for MasterCard and Visa. On average the surcharge you pay is about 0.8% higher than the average cost the retailers incur.
“For certain retailers and hotels, excessive surcharging is money for jam,” says Jeremy Griffith, Visa’s director of corporate relations in Australia, New Zealand and the South Pacific. “A 1.5% surcharge by a hotel, based on the RBA’s published average merchant rates, represents a 70% to 80% margin for the merchant.”
Are some retailers taking us for a ride?
In order to calculate the margins, however, you'd need to know the merchant service fee (MSF) a retailer pays to its bank for processing credit card transactions. The RBA publishes average MSFs. As at June 2010, they were:
- 0.86%: MasterCard and Visa
- 1.93%: American Express
- 2.11% Diners Club
Large merchants pay significantly less than the average however. And even if an average-size retailer is not similarly blessed, odds are they are still charging far in excess of the percentages quoted by the RBA. Small merchants and those processing relatively low volumes of credit card transactions may pay far in excess of the average MSFs quoted above.
Merchants often impose the same surcharge for all payment cards, even though they have very different costs. For example, a restaurant might be charged a 2% MSF for Amex and 1% for Visa and MasterCard, but it decides to apply an average “blended” surcharge to consumers of 1.5%. Airlines also commonly blend their surcharges, with the high use of corporate and premium cards driving up the costs for everyone.