RBA COULD BACKTRACK ON PLAN TO BAN CREDIT CARD SURCHARGES

The Reserve Bank of Australia might water down its controversial proposal to impose a ban on credit card surcharge fees, which drew a backlash from business, and the regulator is also taking steps to appease the big banks’ concerns about interchange fees.

According to minutes released after the RBA’s Payments System Board meeting this week, the regulator is considering “the relative merits of the various options on payment card surcharging”.

Surcharges on debit and credit card payments imposed by businesses have drawn public ire, prompting the Albanese government to ban debit payment surcharges from next year.

Surcharges are increasingly being added for card payments – but Australia’s biggest bank wants them scrapped.

The proposed ban on card surcharges opened a can of worms on how payment costs are allocated across the economy.

Justin McManus.

Although this ban is expected to remain, the RBA is now considering allowing surcharging to continue on some credit cards, said a person familiar with the RBA’s thinking, who requested anonymity.

Rather than imposing a blanket ban on credit card surcharges, it’s possible that they could remain on corporate credit cards and those on which customers pay higher annual fees to earn frequent flyer points.

Such cards are more expensive for businesses to accept.

The minutes also revealed that the regulator was open to negotiation on the planned interchange fee cap.

Such fees are paid between banks to accept card-based transactions, and the cap would strip almost $1 billion from their revenue.

The meeting also revealed that the central bank was considering using new powers to allow it to regulate Apple, American Express and buy now, pay later providers, flagging a public consultation mid next year.

In July, the RBA warned that it could extend the ban on surcharges to bank credit cards, and said it would cut interchange fees.

Australian Hotels Association chief executive Stephen Ferguson.

Elke Meitzel.

A fiery consultation period followed, and small businesses expressed concern about absorbing $1.2 billion in annual payment costs, which they pass through to customers via surcharges.

Meanwhile, the banks were equally outraged at the prospect of interchange fees being cut, warning that they would be forced to jack up credit card interest rates and fees, while restricting access to working capital for businesses.

They also said they might have to dilute the value of frequent flyer points to offset the lost revenue from the proposed lower interchange fees.

In various submissions, small businesses argued that keeping surcharges on credit cards would encourage consumers to use debit cards more often.

This tends to be the cheapest payment method for merchants to accept.

Several submissions said this would be more efficient than removing surcharges on debit and credit cards.

“It’s encouraging to see the Reserve Bank is reconsidering its approach,” said Stephen Ferguson, chief executive of the Australian Hotels Association, which represents pubs.

“There appears to be an understanding that a compromise position will be required to achieve its objectives, including reducing costs for small businesses.

“Any move to increase interchange on credit or corporate cards would logically require a rethink on the ability to surcharge on those cards.”

Fee cap could be reset.

In the minutes, the RBA indicated that it was reconsidering the level of the interchange fee cap.

Under current regulations, the fees for credit cards can be worth up to 80 basis points, or 8¢ for every $10.

In July, the RBA proposed to cut this to 30 basis points, which it estimated would slice domestic bank interchange revenue by about $900 million.

But the board minutes said that members discussed this week “the extent to which interchange caps should be reduced, and whether commercial credit cards should attract higher interchange caps than consumer credit cards”.

The discussion suggests the interchange fee cap could now be set somewhere between 30 and 80 basis points.

This would deliver some relief to the banks, which had feared the worst.

The reference to a higher rate for corporate credit cards is in response to warnings from banks that lowering the interchange fee caps, as initially proposed, would threaten their commercial viability and allow financial institutions such as American Express, which is not captured by the RBA’s proposed reforms, to win more market share.

Commonwealth Bank suggested that the RBA create a special corporate card interchange rate with a higher cap.

CBA chief executive Matt Comyn led the charge, arguing against the proposed changes to the interchange fees.

In parliamentary hearings in Canberra last week, he said it was not fair that the RBA was targeting Australian banks and not global payment companies, given that it did not propose to reduce the “scheme fees” charged by Visa and Mastercard.

These are another layer of payment fees charged by their networks to banks.

Comyn said the prospect of litigation against the RBA by Visa and Mastercard, if it attempted to lower their fees, should not be a deterrent.

Australian Banking Association chief executive Simon Birmingham welcomed the approach being taken by the RBA and said he believed it was important for the sector to maintain the capacity to invest in the nation’s payments system.

“We welcome their early interest in using new powers to look at growing influences like digital wallets,” he said, referring to the likes of Apple.

The RBA has committed to arriving at a final position before Easter, and the board expects to publish its conclusions and an implementation timeline for any regulatory action by March next year.

“The board agreed that it was not in the public interest to further delay this review given the importance of the reforms being considered,” the minutes said.