Well, it’s been nearly 10 years since the Reserve Bank changed the rules to allow card merchants to hit you with a surcharge for using credit cards. Last week, the RBA Payments System Board released the findings of its deliberations on whether it had worked out well.
And finally, they have realised what most of us could see from Day One – that merchants can and will use surcharging as a mechanism to charge more. Airlines led the way, and a raft of others followed. It is especially galling online, where we often have no alternative payment mechanism.
New rules will apply from 1 January 2013.
But surcharging won’t be banned outright. Instead, the RBA are giving the card schemes (MasterCard and Visa) the power to put in rules that only let merchants charge an amount that reflects “reasonable costs” involved in accepting cards.
But that’s what isn’t clear yet: what is a reasonable cost? The RBA is still collecting submissions on that question, but so far they’ve said that it would likely include the ‘merchant service fee’ that the merchant pays to their own bank each time you buy something, and perhaps some other costs beyond that.
Merchant service fees vary greatly; usually, the smaller the merchant, the higher the % fee they are charged by their bank. So you may well find smaller merchants applying higher fees than their larger competitors – unless it would risk losing customers.
The other big question mark over this is, how will it be policed?
There are two issues here. Firstly, the RBA can’t directly enforce the rules and that the job falls to Visa and MasterCard. In turn, Visa and MasterCard don’t have a direct relationship with merchants, they merely license their brand to the banks who enter into a contract with the merchant. So it actually falls to the bank to slap their own merchant customers on the wrist – a tricky thing to do. And secondly, there’s nothing in the data from a purchase that Visa & MasterCard and the banks can use to identify whether there are surcharges. So the whole thingrelies on someone dobbing a merchant in. But because different merchants have different card acceptance costs, and different types of transactions can attract different costs even within the same merchant, it will not be simple to determine what is reasonable. Their costs are even different for different cards in some cases: merchants pay higher fees to their bank if you pull out a Platinum card. (That’s why banks have been pushing Platinum so hard of late.)
So how will you be able to spot an unreasonable surcharge?
And it seems that some merchants are going to dig in:
- Qantas released a statement last week that said that the new rules allow them to “… recover the reasonable costs of card acceptance, as Qantas has always done. We do not recover more through surcharges than it costs us to offer credit cards as a payment method.” I don’t understand that: if it truly costs Qantas $7.70 to process a $100 credit card transaction, they need to switch banks.
- Cabcharge were reported as saying that their 10% surcharge is “… of a different nature to the examples referred to…” in the RBA report. The ABC quoted them as saying it is a fee on a financial service and not a fee on the underlying transaction. Um, well done Cabcharge Legal Department, I hereby present you with the 2012 Most Outstanding Legal Hair Split Award.
Oh, and one more thing. The RBA has no jurisdiction over American Express and Diners cards. They can continue to allow whatever surcharges they like.
Andrew Duncanson is the Research & Insights Director at Mozo