22 September 2015
CHOICE has uncovered over a decade of research and advocacy funded by MasterCard and Visa that is part of a shadowy campaign to keep bank fees high.
Consumer advocacy group CHOICE has analysed research commissioned by credit card companies and big banks dating back to 2002 which reveals a sophisticated campaign to keep card fees high for consumers and push costly rewards programs.
"When we looked back at over a decade of debate about interchange issues we found studies and lobby groups funded by MasterCard, Visa or the banking industry that argue that keeping fees high is good for consumers," says CHOICE Campaigns Manager Erin Turner.
"The fact is MasterCard and Visa are two of the major beneficiaries of keeping interchange fees high. Arguing that higher bank fees reward consumers is laughable."
The revelation comes in the wake of MasterCard emerging as the only known funder of the Don't Change My Interchange campaign being pushed by a mysterious group going by the name of the International Alliance for Electronic Payments (IAEP).
"Charging people a small fee to use a credit card, sure. Funding a "grassroots" campaign to rip off credit card holders – priceless," Ms Turner says.
"Obviously lowering the costs of paying by card such as interchange costs would be good for consumers; it was also recommended by an independent Financial System Inquiry and the Reserve Bank."
"It's time MasterCard came out of the shadows, ended their support for this dodgy front group. It's one thing to argue for the interests of your business, it's another to fund front-groups to do it for you."
"In backing the Don't Change My Interchange movement, MasterCard is trying to spread misinformation about the impact of reforms being considered by the Reserve Bank. The campaign uses research, funded by MasterCard, to claim that consumers will be harmed if a key cost for using credit cards, interchange fees, is reduced."
"We are warning consumers today against this phony grassroots movement backed by MasterCard that has been designed to distribute misinformation to the public in an attempt to keep bank fees unnecessarily high."
CHOICE has written to the Senate Economics Committee currently looking at credit card costs, warning that research and advocacy claiming to be concerned about consumer costs may be funded by corporate interests and present misleading or selective evidence about the impact of reforms.
What is interchange?
An interchange fee is the charge one bank (the card issuer) charges another (the merchant's bank) whenever a consumer chooses to pay by card. Interchange fees are set by card schemes – like Visa, MasterCard and American Express – but collected by banks.
There is pressure for interchange fees to increase as card schemes compete for banks to issue their brand of card. The higher the interchange rate, the more attractive it is for a bank to issue a certain scheme's card. Higher interchange fees flow on to higher costs to merchants, which are eventually reflected in higher than necessary consumer prices, paid not only by cardholders but by all consumers.
The Don't Change My Interchange Campaign claims that:
- Consumers were harmed when the RBA regulated interchange fees in 2003.
- Merchants do not pass on savings from reduced interchange fees to consumers.
- Further efforts to lower interchange will financially harm consumers and could lead to higher interest rates, higher annual fees and shorter interest-free periods.
CHOICE has found that these claims are, at best, presenting a highly selective view of the reforms, which often equate the interests of high-income consumers who benefit from rewards points with all consumers who subsidise the rewards system.
Three key findings of the CHOICE analysis
- Over ten years, MasterCard, Visa and major banks have funded a large body of research and what appear to be front-groups to advocate for keeping interchange fees high. These businesses are the major beneficiaries of high interchange fees but argue that consumers will be harmed if fees are reduced.
- At the moment all consumers, whether they use credit cards or not, pay for high interchange fees through increased prices across the economy. Interchange fees are hidden in business-to-business costs but ultimately lead to all consumers paying higher prices for goods and services. Reducing interchange will reduce costs faced by all businesses and prices paid by consumers.
- Only a small proportion of high-income consumers who use rewards points gain any benefit from the current high level of interchange fees. Lowering interchange fees will stop all consumers subsidising rewards points for a small minority.