Ban the unfair fees on credit and debit cards to end the punishment of Australian consumers and SMEs

26/08/2014

BANK interchange charges1 on Australia’s $480 billion annual credit and debit card spending should be outlawed to provide the country’s 350,000 small businesses with a fair go, according to a submission to the Federal Government’s Financial System Inquiry.

Australia’s leading independent payments provider, Tyro Payments, said that small and medium businesses were being charged an estimated
$400 million more in bank ‘interchange’ fees than they should every year, or up to 10 times more than big business. These interchange fees push up the cost of doing business, and explain why so many businesses have recently introduced surcharging, costing consumers more than $1 billion a year.

“Small and medium sized businesses (SMEs) employ more than seven million Australians2 and are the engine of jobs growth in this country, yet they are having to compete with financial lead in their saddle bags, courtesy of our major banks,” Tyro CEO Jost Stollmann said today. “These charges are essentially invisible to the average customer, but in many cases they are passed on to them in the form of a billion dollar surcharging system.”

“On average an SME business processes about 250 Visa and MasterCard credit or debit card transactions monthly. The interchange fee1 on each transaction costs them 53 cents, adding up to $1,600 per year.3 In comparison, big retailers bring in much larger profits and only pay about 16 cents for the same transaction.4 The best option is to ban the interchange fee all together.”

New Zealand and Canada have mandated that zero interchange fees should apply to their entire EFTPOS network for all debit cards. Likewise, the European Commission lowered cross-border interchange fees to 0.2 percent for debit transactions and to 0.3 percent for credit transactions.

The practice of banning interchange fees was identified as a policy option in the Federal Government’s recent Interim Report of the Financial System Inquiry, the most far reaching inquiry of its kind in more than 15 years. In its submission to be lodged today, Tyro Payments agreed with that option, given Australia is quickly moving towards a cashless society.

“As it stands the cost of moving to a cashless society is pushed to small and medium businesses, which have to absorb it to compete,” Mr Stollmann said. “In comparison, the Australian Securities and Investment Commission (ASIC) recently slapped supermarket giant ALDI on the wrist for inadequate disclosure of imposing surcharges on card transactions.”

Tyro’s original submission to the Financial System Inquiry included four key recommendations;

  1. An ACCC Inquiry into the anti-competitive structure and behaviours in the Australian payment space dominated by the four major retail banks
  2. A review of the Australian Government procurement policies and procedures to promote competition and innovation through open panel tendering of payment services in its multi-billion dollar budgets
  3. An engaged regulator to open up access of the payment system to new technology players, while maintaining supervision and a level playing field
  4. A review of the overcharging and cross-subsidies that currently disadvantage the small to medium business community

In more general terms, Mr Stollmann said the Financial System Inquiry was a one-off opportunity to bring Australia up to a competitive international level when it came to innovation, productivity and healthy market competition. “Australia has lagged behind other Western countries when it comes to encouraging innovation and exploring new technologies,” Mr Stollmann said.

“The finance and banking sector has not faced an inquiry of this kind in 16 years, since the Wallis Report. Business and markets have changed significantly since then. It would be great if this Financial System Inquiry were an encouragement for entrepreneurs and investors to bring innovative, less expensive financial and banking services to Australian consumers and small business markets.”


[1] Interchange fee is charged by the card holder’s bank to the business’ bank and then passed on to the business as part of the merchant service fee. http://www.rba.gov.au/publications/annual-reports/psb/2013/pdf/2013-psb-ann-report.pdf
[2] Australian Government, Department of Innovation Industry , Science and Research, Key Statistics Australian Small Business, page 7
[3] On the basis of the Tyro merchant portfolio
[4] Based on Visa and MasterCard Strategic Merchant interchange rates

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Tresna Karras
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tkarras@tyro.com

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