The Australian Competition and Consumer Commission welcomes the Reserve Bank of Australia's consultation document outlining proposals for reform of the credit card schemes operating in Australia, Visa, MasterCard, and Bankcard.
"These reforms should hand over to consumers and small business several hundred million dollars currently being accumulated mainly by banks through high interchange and merchant service fees", ACCC Chairman, Professor Allan Fels, said today. "Interchange fees are the fees which banks charge one another when processing each other's credit card transactions and total about $775 million.
"Business and consumers currently pay the high cost of Australia's credit card payment system.
"The RBA and the ACCC in October drew attention to the very high level of interchange fees compared with their costs and the RBA regulatory proposals seem likely to reduce them by several hundred million dollars, bringing them into line with specified costs.
"The interchange fees are paid to banks, credit unions and building societies that issue cards to consumers by banks that handle the merchant side of the transaction (the 'merchant acquirer'). The 'merchant acquirers' charge merchants (retailers, utilities and others) about $1.5 billion annually, about half of which is made up of the interchange fee.
"Looked at from the merchant perspective, every time a merchant accepts a payment by credit card the merchant must pay a merchant service fee to the bank.
These fees can be as high as four per cent of the value of the transaction for a small business, although the average is 1.8 per cent.
"These reforms are good news for small business in particular, who benefit from significant reductions in the burden of these bank fees.
"Consumers and business will also benefit from greater competition and efficiency in the payment system.
"The reforms will open the door for non-banks to issue Visa and MasterCard credit cards and also offer merchant services. At present, only authorised deposit taking institutions (i.e. banks, credit unions and building societies) can issue Visa and MasterCard credit cards.
"More competition should lead to lower prices overall for credit card services, in a manner comparable to the way in which consumers benefited from new entry into the mortgage market by non-banks which pushed down the interest margins on home loans.
"These important reform proposals follow on from the Joint Study by the ACCC and the RBA into interchange fees and access arrangements for credit and debit card schemes, published in October 2000, and the ACCC's enforcement action in relation to credit card interchange fees".
The RBA's reform measures have three elements:
- the first is the reduction in the interchange fee - the fee that banks charge each other when processing credit card transactions and which is passed on to all merchants;
- secondly, the end of the restrictions imposed by credit card schemes which prevents merchants from recovering from card holders the costs of accepting credit cards;
- third, and perhaps most important, an end to the credit card closed shop operated by financial institutions (mainly banks, but also credit unions and building societies) which will open up the schemes to more competition.
"The expected savings for business and consumers will result from both a regulated reduction in the level of interchange fees, and greater competition in both the credit card issuing market and the merchant servicing market.
"The ACCC also supports ending the Visa/MasterCard practice of imposing restrictions to prevent merchants from recovering from credit card holders the cost of accepting credit cards. This does not necessarily mean that retailers will introduce such a charge. There have already been indications that a significant number of retailers would not introduce a charge.
"The Reserve Bank and the ACCC have worked closely to ensure that Australia has a competitive and efficient retail payments system that operates in the public interest.