Michele Bullock’s Reserve Bank has gone further than expected in trying to stamp out the much-hated credit and debit card surcharge fees by turning the clock back on the payments system to where the central bank began two decades ago.
The RBA has finally landed on a position whereby consumers (sort of) win to the tune of $1.2bn a year, while banks, retailers and card schemes such as Visa and Mastercard all (in theory) absorb almost $900m of fees.
However, the missing and increasingly central piece of the messy jigsaw that forms the Australian payments system is Apple. The tech giant is piggybacking on the payments infrastructure, clipping the ticket across millions of transactions made using its iPhones each day. That’s where the large chunk of the $300m gap in fees between consumers and banks is thought to be going.
The RBA doesn’t yet have the power to add digital wallets, which includes the tech giant, in the payments system, and the Albanese government hasn’t got around to legislating this. A proposal was kicked down the road before the May election.
Any regulatory clampdown on US tech majors has so far generated unhelpful attention from US President Donald Trump.
The central bank can only deal with what’s in front of it, and that’s today’s payments system. Bullock wants businesses to start thinking about card fees as a cost of doing business, not a revenue stream from customers. But to do this, the RBA needs a lot of stick to ensure banks and card payments schemes charge more in line with their real cost.
It also wants to bring about consistency in the payments system.
As the RBA is trying to tackle the alarmingly dense and highly opaque payments system, it’s unlikely to be that simple. Those who don’t have pricing power – consumers and small businesses – could end up paying one way or another, potentially through end pricing, although the interchange fees will arguably be reset at a lower base.
That’s the qualifier around consumers being the ultimate winners.
Still, Australia is finally catching up with Europe and the UK, where surcharging fees have been banned for years. Interestingly, despite a strong campaign mounted in Europe by banks and card providers such as Visa and Mastercard, the forced cut in fees across the EU has not led to a higher rate of payments fraud and poor tech investment.
Indeed, the RBA argues the EU is a more innovative payments market than Australia, even though the fees are lower.
Cash no longer king
The RBA reasons that surcharging made sense 20 years ago, when the use of credit and debit cards was more expensive than using cash, and the central bank was attempting to give consumers pricing signals.
In 2008, nearly 70 per cent of payments were in cash. Latest figures show cash payments now make up only 13 per cent. At the same time, the cost of paying by debit or credit card has fallen, while the “cost” of cash has become more expensive to use for banks and retailers.
The RBA believes the need to drive consumers into using cash is no longer needed, while contactless payments and online transactions mean it’s becoming harder for consumers to avoid surcharges. That’s why the RBA wants to stamp them out.
It feels like the moment when the competition regulator started cracking down on SMS charges more than a decade and a half ago. Suddenly, the telco fees disappeared.
Australia’s two-decade regime of allowing retailers and merchants to recover card payment costs has helped to launch an entire tech industry around payments. It made it a magnet for payment providers – known as payment acquirers – such as Jack Dorsey’s Block or ASX-listed Tyro.
While they provided convenience to smaller retailers and long overdue innovation in wireless payments, fees for consumers continued to go up, rather than down.
Tyro shares fell more than 10 per cent earlier on Tuesday as investors feared it would strengthen the hand of incumbents. All things being equal, it should get the benefit of lower interchange fees the RBA is forcing on Visa and Mastercard.
The structure of Australia’s payments system helped to turbocharge the development of buy now, pay later schemes at a faster rate than other markets. The RBA gave a free pass to BNPL schemes by not designating them (which essentially meant there was no surcharging on payments), giving them a competitive edge against card schemes such as Visa and Mastercard. The RBA regarded them as emerging and wanted to inject more competition into the system. While they flourished, surcharges on other payments stayed in place, making BNPL on balance more attractive to consumers.
As part of the shake-up, the banks stand to lose payments fees, although they have long argued for consistency over the payments system. They were the ones that often copped the criticism for excessive fees. Remember, last year NAB chief executive Andrew Irvine told a parliamentary hearing that surcharge fees were “all over the place”.
“In Sydney, I had the shocking experience of buying a coffee with a 10 per cent surcharge. I don’t know if any of you have experienced that, but that’s outrageous,” Irvine told a parliamentary committee examining the use of cash.
“I personally don’t like surcharging, but if surcharging is maintained, I hope to goodness that it’s simpler, more transparent and consistent.”
With the RBA acting now to stamp out surcharging, it’s better late than never, although consumers will need to wait until at least the end of the year, when the RBA makes its final decision.
johnstone@theaustralian.com.au
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