CBA SCHEME FEES WARNING PILES PRESSURE ON RBA

The Reserve Bank’s hands off attitude to scheme fees will be tested by commentary from Australia’s biggest bank when it unveiled its financial results last week.

The Commonwealth Bank has admitted rising scheme fees are eating into its merchant business, as retailers accuse the RBA of being too soft on card schemes for too long.

While the central bank warns of potential caps or least cost routing on credit transactions if scheme fees continue to rise, Commonwealth Bank has become the second major bank to put scheme fees squarely in the spotlight.

When CEO Matt Comyn presented last week’s results, the documents included a warning about “lower merchant revenue due to higher scheme fees” — a blunt admission repeated across its investor commentary.

The disclosure shows that even Australia’s biggest acquirer is feeling the squeeze from Visa and Mastercard’s charges on every transaction.

Westpac went further than its peers in its submission to the RBA review, warning that blended pricing obscures the rising burden of scheme fees and leaves merchants and consumers in the dark.

“Blended pricing makes it difficult for merchants to understand their actual payment costs, including scheme fees, and this opacity ultimately harms consumers,” the bank argued, urging the RBA to prohibit the practice and require clearer disclosure of the fees embedded in card payments.

The warning lands as the Reserve Bank of Australia (RBA) intensifies its sweeping review of retail payments, with scheme fees emerging as one of the most contentious issues.

In its July consultation, the central bank wrote that “scheme fees now account for around one-quarter of the cost of domestic debit transactions and one-sixth of domestic credit and have been rising over time.”

It also flagged that “scheme fees should not rise relative to transaction values without clear explanation.”

The RBA’s Payments System Board was even sharper, warning: “Should scheme fees continue to grow faster than transaction values, the Board would consider further potential measures to contain their growth, including introducing a cap on scheme fees or mandating dual-network credit cards and extending least-cost routing to credit card transactions.”

For years, merchants have accused the RBA of taking a hands-off approach — trusting that competition would discipline the networks.

Business groups say this has let Visa and Mastercard steadily ratchet up opaque charges.

Even the Australian Banking Association (ABA), usually aligned with the card schemes, conceded in its submission that “scheme fees are unregulated, complex and opaque, and there is a clear case for greater transparency.”

For CBA, the disclosure shows that rising scheme costs — charged by Visa and Mastercard on every transaction — are eating into its merchant-acquiring margins.

While the bank has previously called for reforms to card surcharging, its results confirm that it too is being squeezed by the networks’ opaque pricing.

Globally, regulators have been more aggressive.

In the European Union, the Interchange Fee Regulation capped debit and credit interchange at 0.2% and 0.3%, but left scheme fees untouched — which retailers say have risen more than 30% since 2018.

In the UK, the Payment Systems Regulator found earlier this year that scheme and processing fees up 25% between 2017 and 2023, with retailers calling the hikes “price gouging” and a £380 million ($790m) burden.

Submissions to the RBA review close on August 26.