Informed by the RBA consultation paper, subsequent submissions, Tyro’s own discussions and today’s Payments Roundtable, one thing has firmed in my mind. We are at a crossroads when it comes to card payments in Australia.
Our regulatory debate has to move on from yesterday’s battle to today’s reality. The world has changed and many approaches proposed for the system only a short while ago have become technologically obsolete.
These points are true:
- The fight for the digital-savvy consumer requires simple, easy, real-time payment solutions like contactless, account level processing, and mobile wallets. This is the way it goes. It is called user experience.
- The reality is the developer and issuer of the payment product (card schemes and issuing banks) make all the choices and the retailer and their bank are disempowered. There is no more cost information, no product or network choice, and no opportunity for the cardholder or merchant to make any choice at the moment of payment.
- Then the RBA’s concept of transporting price signals to the point of payment which puts competitive tension into the payment selection (by giving the cardholder and merchant a choice) becomes obsolete. It just does not work.
- The retailer and cardholder cannot avoid high, and at the time unknown, costs imposed on them directly or indirectly.
Given the new realities of payment technology, the retailers and consumers cannot avoid the burden of these hidden fees or recover them through an actual surcharge of reasonable costs.
Since the RBA initially determined the cost of credit card transactions and capped the average interchange fee at 0.5 percent, the card payment transaction volume has tripled. One would suspect that with such a volume growth, a digital product would benefit from automation, scale and other efficiencies driving down the costs.
In its 2007/08 review, the Payment Systems Board deferred its recommendation to lower the credit card interchange fee cap to 0.3 percent. It’s now overdue to put that decision into effect. It’s also time to eliminate all interchange fees on debit cards, where Australians use their own money.
The advances in technology have eliminated many of the regulatory choices still being discussed.
The Payment System Board and the Reserve Board should simplify the current over-complicated regime by eliminating the interchange fee or at least lowering it to the recommended level, which was adopted across the European Union.
As the interchange fee becomes reasonable (lower), the pressure to surcharge and the subsequent unsocial cross-subsidies will wane and Australia’s migration into the cashless society will accelerate.
It all becomes so much simpler and no regulators will be trapped in complicatedness and enforcement nightmares.