After heavy lobbying by the big banks and the global card schemes to maintain excessive interchange fees on credit card transactions, the Payments System Board (PSB*) will finally decide on the direction it will take at its meeting on November 20.
Will the Payments System Board:
- Follow the lead of the European Commission and impose the hard cap on interchange fees of 30 basis points?
- Lead the regulatory world, as it once did, and finally eliminate interchange fees that the banks charge each other and then force onto merchants and consumers?
Tyro has relentlessly deplored these fees as excessive, unjustifiable and untimely. How come that with the continuous strong growth of electronic card transactions year-on-year to $503 billion in 2014/15, no cost efficiencies have been passed on to merchants and consumers? It is excessive fees that are the driver of the vexing surcharging practice, often the only way for small businesses to recover these fees.
The case is clear. Banks and card schemes have created a wide range of ever-more expensive cards and, as a result, eliminated all cost transparency and choice for merchants and consumers. Government taxes can be imposed without choice, not excessive bank fees. Thus interchange fees have to go.
The dominant banks, global schemes and big retailers have gamed the regulatory system. Low-income Australians and small-to-medium business owners have been the losers of their practice as interchange fees for small businesses are up to 10 times higher than for big retailers while low-income consumers pay 6.7 times more than high net worth individuals. And that divide is only widening.
Getting rid of the interchange fee would kick-start a beneficial chain of events that would eliminate regulatory complexity, abolish unfair cross-subsidies and vexing surcharging (reversing interchange). It would also remove barriers to innovation and catapult Australia into the cashless society. Consumers would also enjoy relief from rising cost of living pressures, while retailers struggling in a difficult market would become more profitable and competitive.
Tyro has called on the Reserve Bank of Australia to regulate for the future.
* The Payments System Board is responsible for the Reserve Bank’s payments system policy